[Federal Register Volume 87, Number 18 (Thursday, January 27, 2022)]
[Rules and Regulations]
[Pages 4338-4454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00292]



[[Page 4337]]

Vol. 87

Thursday,

No. 18

January 27, 2022

Part II





Department of the Treasury





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31 CFR Part 35





Coronavirus State and Local Fiscal Recovery Funds; Final Rule

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / 
Rules and Regulations

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DEPARTMENT OF THE TREASURY

31 CFR Part 35

RIN 1505-AC77


Coronavirus State and Local Fiscal Recovery Funds

AGENCY: Department of the Treasury.

ACTION: Final rule.

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SUMMARY: The Secretary of the Treasury (Treasury) is adopting as final 
the interim final rule published on May 17, 2021, with amendments. This 
rule implements the Coronavirus State Fiscal Recovery Fund and the 
Coronavirus Local Fiscal Recovery Fund established under the American 
Rescue Plan Act.

DATES: The provisions in this final rule are effective April 1, 2022.

FOR FURTHER INFORMATION CONTACT: Katharine Richards, Director, 
Coronavirus State and Local Fiscal Recovery Funds, Office of Recovery 
Programs, Department of the Treasury, (844) 529-9527.

SUPPLEMENTARY INFORMATION:

I. Introduction

Overview

    Since the first case of coronavirus disease 2019 (COVID-19) was 
discovered in the United States in January 2020, the pandemic has 
caused severe, intertwined public health and economic crises. In March 
2021, as these crises continued, the American Rescue Plan Act of 2021 
(ARPA) \1\ established the Coronavirus State and Local Fiscal Recovery 
Funds (SLFRF) to provide state, local, and Tribal governments \2\ with 
the resources needed to respond to the pandemic and its economic 
effects and to build a stronger, more equitable economy during the 
recovery. The U.S. Department of the Treasury (Treasury) issued an 
interim final rule implementing the SLFRF program on May 10, 2021 \3\ 
and has since disbursed over $240 billion to state, local, and Tribal 
governments and received over 1,500 public comments on the interim 
final rule. Treasury is now issuing this final rule which responds to 
public comments, implements the ARPA statutory provisions on eligible 
and ineligible uses of SLFRF funds, and makes several changes to the 
provisions of the interim final rule, summarized below in the section 
Executive Summary of Major Changes.
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    \1\ Public Law 117-2. https://www.congress.gov/117/plaws/publ2/PLAW-117publ2.pdf.
    \2\ Throughout this Supplementary Information, Treasury uses 
``state, local, and Tribal governments'' or ``recipients'' to refer 
generally to governments receiving SLFRF funds; this includes 
states, territories, Tribal governments, counties, metropolitan 
cities, and nonentitlement units of local government.
    \3\ 86 FR 26786 (May 17, 2021).
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    Since Treasury issued the interim final rule in May 2021, both the 
public health and economic situations facing the country have evolved. 
On the public health front, the United States has made tremendous 
progress in the fight against COVID-19, including a historic 
vaccination campaign that has reached over 80 percent of adults with at 
least one dose and is reaching millions of children as well.\4\ 
However, the disease continues to present an imminent threat to public 
health, especially among unvaccinated individuals. As the Delta variant 
spread across the country this summer and fall, the United States faced 
another severe wave of cases, deaths, and strain on the healthcare 
system, with the risk of hospitalization and mortality exponentially 
greater to unvaccinated Americans. COVID-19 has now infected over 50 
million and killed over 800,000 Americans since January 2020; tens of 
thousands of Americans continue to be infected each day.\5\ Even as the 
nation recovers, new and emerging COVID-19 variants may continue to 
pose threats to both public health and the economy. Moving forward, 
state, local, and Tribal governments will continue to play a major role 
in responding through vaccination campaigns, testing, and other 
services.
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    \4\ Centers for Disease Control and Prevention, COVID Data 
Tracker: COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited 
December 31, 2021).
    \5\ Centers for Disease Control and Prevention, COVID Data 
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited December 7, 2021).
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    The economic recovery similarly has made tremendous progress but 
faces continued risks from the disease and the disruptions it has 
caused. In the early months of the pandemic, the United States 
experienced the sharpest economic downturn on record, with unemployment 
spiking to 14.8 percent in April 2020.\6\ The economy has gradually 
added back jobs, with growth accelerating in the first half of 2021.\7\ 
However, as the Delta variant spread, the intensified health risks and 
renewed disruptions slowed growth, demonstrating the continued risks 
from the virus. By fall 2021, the economy had exceeded its pre-pandemic 
size \8\ and unemployment had fallen below 5 percent,\9\ but despite 
this progress, too many Americans remain unemployed, out of the labor 
force, or unable to pay their bills, with this pain particularly acute 
among lower-income Americans and communities of color. Again, moving 
forward, state, local, and Tribal governments will remain on the 
frontlines of the economic response and rebuilding a stronger economy 
in the aftermath of the pandemic.
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    \6\ U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], 
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE (last visited December 7, 2021).
    \7\ Id.
    \8\ U.S. Bureau of Economic Analysis, Real Gross Domestic 
Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St. 
Louis, https://fred.stlouisfed.org/series/GDPC1 (last visited 
December 7, 2021).
    \9\ U.S. Bureau of Labor Statistics, supra note 6.
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    However, as state, local, and Tribal governments continue to face 
substantial needs to respond to public health and economic conditions, 
they have also experienced severe impacts from the pandemic and 
resulting recession. State, local, and Tribal governments cut over 1.5 
million jobs in the early months of the pandemic amid sharp declines in 
revenue and remain over 950,000 jobs below their pre-pandemic 
levels.\10\ As the Great Recession demonstrated, austerity among state, 
local, and Tribal governments can hamper overall economic growth and 
severely curtail the ability of governments to serve their 
constituents.
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    \10\ U.S. Bureau of Labor Statistics, All Employees, State 
Government [CES9092000001] and All Employees, Local Government 
[CES9093000001], retrieved from FRED, Federal Reserve Bank of St. 
Louis, https://fred.stlouisfed.org/series/CES9092000001 and https://fred.stlouisfed.org/series/CES9093000001 (last visited December 7, 
2021).
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    Recognizing these imperatives, the SLFRF program provides vital 
resources for state, local, and Tribal governments to respond to the 
pandemic and its economic effects and to replace revenue lost due to 
the public health emergency, preventing cuts to government services. 
Specifically, the ARPA provides that SLFRF funds \11\ may be used:
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    \11\ The ARPA adds section 602 of the Social Security Act, which 
creates the State Fiscal Recovery Fund, and section 603 of the 
Social Security Act, which creates the Local Fiscal Recovery Fund 
(together, SLFRF). Sections 602 and 603 contain substantially 
similar eligible uses; the primary difference between the two 
sections is that section 602 establishes a fund for states, 
territories, and Tribal governments and section 603 establishes a 
fund for metropolitan cities, nonentitlement units of local 
government, and counties.
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    (a) 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;
    (b) To respond to workers performing essential work during the 
COVID-19

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public health emergency by providing premium pay to eligible workers;
    (c) 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; and
    (d) To make necessary investments in water, sewer, or broadband 
infrastructure.
    In addition, Congress specified two types of ineligible uses of 
funds: funds may not be used for deposit into any pension fund or, for 
states and territories only, to directly or indirectly offset a 
reduction in net tax revenue resulting from a change in law, 
regulation, or administrative interpretation.
    Issued May 10, 2021, Treasury's interim final rule provided further 
detail on eligible uses of funds within the four statutory categories, 
ineligible uses of funds, and administration of the program. The 
interim final rule provided state, local, and Tribal governments 
substantial flexibility to determine how best to use payments from the 
SLFRF program to meet the needs of their communities. The interim final 
rule aimed to facilitate swift and effective implementation by 
establishing a framework for determining the types of programs and 
services that are eligible under the ARPA along with examples of 
eligible uses of funds that state, local, and Tribal governments may 
consider.
    State, local, and Tribal governments are already deploying SLFRF 
funds to make an impact in their communities. The SLFRF program ensures 
that state, local, and Tribal governments have the resources needed to 
fight the pandemic, sustain and strengthen the economic recovery, 
maintain vital public services, and make investments that support long-
term growth, opportunity, and equity. Treasury looks forward to 
supporting and engaging with state, local, and Tribal governments as 
they use these funds to make transformative investments in their 
communities. Finally, with so many pressing and effective ways to use 
SLFRF funds, there is no excuse for waste, fraud, or abuse of these 
funds.
    Treasury received over 1,500 comments spanning nearly all aspects 
of the interim final rule. The final rule considers and responds to 
comments, provides clarification to many aspects of the interim final 
rule, and makes several changes to eligible uses under the program, 
summarized immediately below.

Executive Summary of Major Changes and Clarifications

    The final rule provides broader flexibility and greater simplicity 
in the program, in response to public comments. Among other 
clarifications and changes, the final rule provides for the following:
    <bullet> Public Health and Negative Economic Impacts: In addition 
to programs and services, the final rule clarifies that recipients may 
use funds for capital expenditures that support an eligible COVID-19 
public health or economic response. For example, recipients may build 
certain affordable housing, childcare facilities, schools, hospitals, 
and other projects consistent with the requirements in this final rule 
and the Supplementary Information.
    In addition, the final rule presumes that an expanded set of 
households and communities are ``impacted'' or ``disproportionately 
impacted'' by the pandemic, thereby allowing recipients to provide 
responses to a broad set of households and entities without requiring 
additional analysis. Further, the final rule provides a broader set of 
enumerated eligible uses available for these communities as part of 
COVID-19 public health and economic response, including making 
affordable housing, childcare, and early learning services eligible in 
all impacted communities and making certain community development and 
neighborhood revitalization activities eligible for disproportionately 
impacted communities.
    Further, the final rule allows for a broader set of uses to restore 
and support government employment, including hiring above a recipient's 
pre-pandemic baseline, providing funds to employees that experienced 
pay cuts or furloughs, avoiding layoffs, and providing retention 
incentives.
    <bullet> Premium Pay: The final rule offers more streamlined 
options to provide premium pay, by broadening the share of essential 
workers who can receive premium pay without a written justification 
while maintaining a focus on lower-income and frontline essential 
workers.
    <bullet> Revenue Loss: The final rule offers a standard allowance 
for revenue loss of up to $10 million, not to exceed a recipient's 
SLFRF award amount, allowing recipients to select between a standard 
amount of revenue loss or complete a full revenue loss calculation. 
Recipients that select the standard allowance may use that amount for 
government services.
    <bullet> Water, Sewer, and Broadband Infrastructure: The final rule 
significantly broadens eligible broadband infrastructure investments to 
address challenges with broadband access, affordability, and 
reliability, and adds additional eligible water and sewer 
infrastructure investments, including a broad range of lead remediation 
and stormwater management projects.

Structure of the Supplementary Information

    In addition to this Introduction, this Supplementary Information is 
organized into four sections: (1) Eligible Uses, (2) Restrictions on 
Use, (3) Program Administration Provisions, and (4) Regulatory 
Analyses.
    The Eligible Uses section describes the standards to determine 
eligible uses of funds in each of the four eligible use categories:
    (1) Responding to the public health and negative economic impacts 
of the pandemic (which includes several sub-categories)
    (2) Providing premium pay to essential workers
    (3) Providing government services to the extent of revenue loss due 
to the pandemic, and
    (4) Making necessary investments in water, sewer, and broadband 
infrastructure.
    Each eligible use category has separate and distinct standards for 
assessing whether a use of funds is eligible. Standards, restrictions, 
or other provisions in one eligible use category do not apply to the 
others. Therefore, recipients should first determine which eligible use 
category a potential use of funds fits within, then assess whether the 
potential use of funds meets the eligibility standard or criteria for 
that category. In the case of uses to respond to the public health and 
negative economic impacts of the pandemic, recipients should also 
determine which sub-category the eligible use fits within (i.e., public 
health, assistance to households, assistance to small businesses, 
assistance to nonprofits, aid to impacted industries, or public sector 
capacity and workforce), then assess whether the potential use of funds 
meets the eligibility standard for that sub-category. Treasury does not 
pre-approve uses of funds; recipients are advised to review the final 
rule and may pursue eligible projects under it.
    In some sections of the rule, Treasury identifies specific uses of 
funds that are eligible, called ``enumerated eligible uses''; for 
example, Treasury provides many enumerated eligible uses of funds to 
respond to the public health and negative economic impacts of the 
pandemic. Uses of funds that are not specifically named as eligible in 
this

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final rule may still be eligible in two ways. First, under the revenue 
loss eligible use category, recipients have broad latitude to use funds 
for government services up to their amount of revenue loss due to the 
pandemic. A potential use of funds that does not fit within the other 
three eligible use categories may be permissible as a government 
service, which recipients can fund up to their amount of revenue loss. 
For example, transportation infrastructure projects are generally 
ineligible as a response to the public health and negative economic 
impacts of the pandemic; however, a recipient could fund these projects 
as a government service up to its amount of revenue loss, provided that 
other restrictions on use do not apply. See sections Revenue Loss and 
Restrictions on Use for further information. Second, the eligible use 
category for responding to the public health and negative economic 
impacts of the pandemic provides a non-exhaustive list of enumerated 
eligible uses, which means that the listed eligible uses include some, 
but not all, of the uses of funds that could be eligible. The Eligible 
Uses section provides a standard for determining if other uses of 
funds, beyond those specifically enumerated, are eligible. If a 
recipient would like to pursue a use of funds that is not specifically 
enumerated, the recipient should use the standard and other guidance 
provided in the section Public Health and Negative Economic Impacts to 
assess whether the use of funds is eligible.
    Next, the Restrictions on Use section describes limitations on how 
funds may be used. Treasury has divided the Restriction on Use section 
into (A) statutory restrictions under the ARPA, which include (1) 
offsetting a reduction in net tax revenue, and (2) deposits into 
pension funds, and (B) other restrictions on use, which include (1) 
debt service and replenishing reserves, (2) settlements and judgments, 
and (3) general restrictions. These restrictions apply to all eligible 
use categories; however, some restrictions apply only to certain types 
of recipient governments, and recipients are advised to review the 
final rule to determine which restrictions apply to their type of 
government (e.g., state, territory, Tribal government, county, 
metropolitan city, or nonentitlement unit of government). To reiterate, 
for recipient governments covered by a specific restriction, that 
restriction applies to all eligible use categories and any use of funds 
under the SLFRF program. Specifically:
    <bullet> For states and territories only, funds may not be used to 
offset directly or indirectly a reduction in net tax revenue resulting 
from a change in state or territory law.
    <bullet> For all recipients except Tribal governments, funds may 
not be used for deposits into a pension fund.
    <bullet> For all recipients, funds may not be used for debt service 
or replenishing financial reserves.
    <bullet> All recipients must also comply with three general 
restrictions. First, a recipient may not use SLFRF funds for a program, 
service, or capital expenditure that conflicts with or contravenes the 
statutory purpose of ARPA, including a program, service, or capital 
expenditure that includes a term or condition that undermines efforts 
to stop the spread of COVID-19. Second, recipients may not use SLFRF 
funds in violation of the conflict-of-interest requirements contained 
in the Award Terms and Conditions, including any self-dealing or 
violation of ethics rules. Lastly, recipients should be aware that 
federal, state, and local laws and regulations, outside of SLFRF 
program requirements, also apply, including for example, environmental 
laws and federal civil rights and nondiscrimination requirements, which 
include prohibitions on discrimination on the basis of race, color, 
national origin, sex (including sexual orientation and gender 
identity), religion, disability, age, or familial status (having 
children under the age of 18).
    The Program Administration Provisions section describes the 
processes and requirements for administering the program on an ongoing 
basis, specifically as relates to the following: Distribution of funds, 
timeline for using funds, transfer of funds from a recipient to 
different organizations, use of funds for program administration, 
reporting on use of funds, and remediation and recoupment of funds used 
for ineligible purposes. Of note, SLFRF funds may only be used for 
costs incurred within a specific time period, beginning March 3, 2021, 
with all funds obligated by December 31, 2024 and all funds spent by 
December 31, 2026. Recipients are advised to also consult Treasury's 
Reporting and Compliance Guidance for additional information on program 
administration processes and requirements, including applicability of 
the Uniform Guidance.
    Finally, the section Regulatory Analyses provides Treasury's 
analysis of the impacts of this rulemaking, as required by several 
laws, regulations, and Executive Orders.
    Throughout this Supplementary Information, statements using the 
terms ``should'' or ``must'' refer to requirements, except when used in 
summarizing opinions expressed in public comments. Statements using the 
term ``encourage'' refer to recommendations, not requirements.

II. Eligible Uses

A. Public Health and Negative Economic Impacts

Background
    Since the first case of COVID-19 was discovered in the United 
States in January 2020, the disease has infected over 50 million and 
killed over 800,000 Americans.\12\ The disease--and necessary measures 
to respond--have had an immense public health and economic impact on 
millions of Americans across many areas of life, as detailed below in 
the respective sections on Public Health and Negative Economic Impacts. 
Since the release of the interim final rule in May 2021, the country 
has made major progress in fighting the disease and rebuilding the 
economy but faces continued risks, as illustrated by the spread of the 
Delta variant and the resulting slowdown in the economic recovery. The 
SLFRF program, and Treasury's interim final rule, provide substantial 
flexibility to recipients to respond to pandemic impacts in their local 
community; this flexibility is designed to help state, local, and 
Tribal governments adapt to the evolving public health emergency and 
tailor their response as needs evolve and to the particular local needs 
of their communities.
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    \12\ Centers for Disease Control and Prevention, COVID Data 
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited December 31, 2021).
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    Indeed, state, local, and Tribal governments face continued needs 
to respond at scale to the public health emergency. This includes 
continued public health efforts to slow the spread of the disease, to 
increase vaccination rates and provide vaccinations to new populations 
as they become eligible, to protect individuals living in congregate 
facilities, and to address the broader impacts of the pandemic on 
public health. Similarly, while a strong economic recovery is underway, 
the economy remains 3.9 million jobs below its pre-pandemic level, 
pointing to the continued need for response efforts, with low-income 
workers and communities of color facing elevated rates of unemployment 
and economic hardship.\13\ Long-standing disparities in health and 
economic outcomes in

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underserved \14\ communities, that amplified and exacerbated the 
impacts of the pandemic, also present continued barriers to full and 
equitable recovery.
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    \13\ U.S. Bureau of Labor Statistics, All Employees, Total 
Nonfarm [PAYEMS] https://fred.stlouisfed.org/series/PAYEMS (last 
visited December 7, 2021).
    \14\ Treasury uses ``underserved'' to refer to populations 
sharing a particular characteristic, as well as geographic 
communities, that have been systematically denied a full opportunity 
to participate in aspects of economic, social, and civic life. In 
the interim final rule, Treasury generally used the term 
``disadvantaged'' to refer to these same populations and 
communities.
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    As state, local, and Tribal governments work to meet the public 
health and economic needs of their communities, these governments are 
also confronting the need to rebuild their own capacity. Facing severe 
budget challenges during the pandemic, many state, local, and Tribal 
governments have been forced to make cuts to services or their 
workforces, including cutting over 1.5 million jobs from February to 
May 2020, or delay critical investments. As of fall 2021, state, local, 
and Tribal government employment remained over 950,000 jobs below pre-
pandemic levels.\15\ In the recovery from the Great Recession, cuts to 
state, local, and Tribal governments became a meaningful drag on 
economic growth for several years, and the SLFRF program provides the 
resources needed to re-invest in vital public services and workers to 
avoid this outcome.\16\
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    \15\ U.S. Bureau of Labor Statistics, All Employees, State 
Government [CES9092000001] and All Employees, Local Government 
[CES9093000001], retrieved from FRED, Federal Reserve Bank of St. 
Louis, https://fred.stlouisfed.org/series/CES9092000001 and https://fred.stlouisfed.org/series/CES9093000001 (last visited December 7, 
2021).
    \16\ Tracy Gordon, State and Local Budgets and the Great 
Recession, Brookings Institution (Dec. 31, 2012), http://www.brookings.edu/articles/state-and-local-budgets-and-the-great-recession.
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1. General Provisions: Structure and Standards
    Background: Sections 602(c)(1)(A) and 603(c)(1)(A) of the Social 
Security Act establish that recipients may use funds ``to respond to 
the public health emergency with respect to COVID-19 or its negative 
economic impacts, including assistance to households, small businesses, 
and nonprofits, or aid to impacted industries such as tourism, travel, 
and hospitality.'' The interim final rule established three categories 
within this eligible use: (1) Public health responses for those 
impacted by the pandemic, including the general public; (2) responses 
to the negative economic impacts that were experienced by those 
impacted as a result of the pandemic; and (3) additional services, 
either as a public health response or a response to the negative 
economic impacts of the pandemic, for disproportionately impacted 
communities.
    The interim final rule established the method to determine which 
specific programs or services may be eligible to respond to the public 
health emergency or to respond to the negative economic impacts of the 
public health emergency within this framework. The interim final rule 
included multiple enumerated uses that are eligible within each of 
these categories when provided to eligible populations, including 
populations that the interim final rule presumed to have been impacted 
(in the case of public health responses and responses to negative 
economic impacts) or disproportionately impacted (in the case of 
disproportionately impacted communities). Finally, the interim final 
rule also allowed recipients to designate additional individuals or 
classes as impacted or disproportionately impacted. The standards for 
each of these criteria under the interim final rule are discussed 
below.
    To assess whether a program or service would be eligible to respond 
to the public health emergency or its negative economic impacts, the 
interim final rule stated that, ``the recipient [is required] to, 
first, identify a need or negative impact of the COVID-19 public health 
emergency and, second, identify how the program, service, or other 
intervention addresses the identified need or impact [. . . .] 
[E]ligible uses under this category must be in response to the disease 
itself or the harmful consequences of the economic disruptions 
resulting from or exacerbated by the COVID-19 public health 
emergency.'' The enumerated eligible uses were presumed to meet this 
criterion.
    With respect to uses not specifically enumerated in the interim 
final rule as eligible public health responses, the interim final rule 
stated that, ``[t]o assess whether additional uses would be eligible 
under this category, recipients should identify an effect of COVID-19 
on public health, including either or both of immediate effects or 
effects that may manifest over months or years, and assess how the use 
would respond to or address the identified need.''
    With respect to uses not specifically enumerated in the interim 
final rule as eligible responses to a negative economic impact of the 
public health emergency, the interim final rule stated that 
``[e]ligible uses that respond to the negative economic impacts of the 
public health emergency must be designed to address an economic harm 
resulting from or exacerbated by the public health emergency. In 
considering whether a program or service would be eligible under this 
category, the recipient should assess whether, and the extent to which, 
there has been an economic harm, such as loss of earnings or revenue, 
that resulted from the COVID-19 public health emergency and whether, 
and the extent to which, the use would respond to or address this 
harm.\17\ A recipient should first consider whether an economic harm 
exists and whether this harm was caused or made worse by the COVID-19 
public health emergency.'' The interim final rule went on to say that: 
``In addition, the eligible use must `respond to' the identified 
negative economic impact. Responses must be related and reasonably 
proportional to the extent and type of harm experienced; uses that bear 
no relation or are grossly disproportionate to the type or extent of 
harm experienced would not be eligible uses.''
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    \17\ In some cases, a use may be permissible under another 
eligible use category even if it falls outside the scope of section 
(c)(1)(A) of section 602 and 603 of the Social Security Act.
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    Throughout this final rule, Treasury refers to households, 
communities, small businesses, nonprofits, and industries that 
experienced public health or negative economic impacts of the pandemic 
as ``impacted.'' The first section in the interim final rule under this 
eligible use category included public health responses for these 
impacted classes. The second category in the interim final rule under 
this eligible use category included responses to the negative economic 
impacts that were experienced by these impacted classes as a result of 
the pandemic.
    The interim final rule further recognized that certain populations 
have experienced disproportionate health or negative economic impacts 
during the pandemic, as pre-existing disparities in these communities 
amplified the impacts of the pandemic. For example, the interim final 
rule recognized that the negative economic effects of the pandemic were 
particularly pronounced among lower-income families, who were more 
likely to experience income loss and more likely to have a job that 
required in-person work. The interim final rule recognized the role of 
pre-existing social vulnerabilities and disparities in driving the 
disparate health and economic outcomes and presumed that programs 
designed to address these health or economic disparities are responsive 
to the public health or negative economic impacts of the COVID-19 
public health emergency, when provided in disproportionately impacted 
communities. In addition to identifying certain populations and 
communities

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presumed to be disproportionately impacted, it also empowered 
recipients to identify other disproportionately impacted households, 
populations, communities, or small businesses. The interim final rule 
provided that, in identifying these disproportionately impacted 
communities, recipients should be able to support their determination 
that the pandemic resulted in disproportionate public health or 
economic outcomes to the specific populations, households, or 
geographic areas to be served.
    Throughout this final rule, Treasury refers to those households, 
communities, small businesses, and nonprofits that experienced 
disproportionate public health or negative economic impacts of the 
pandemic as ``disproportionately impacted.'' The third category in the 
interim final rule under this eligible use included public health 
responses and responses to the negative economic impacts for these 
disproportionately impacted classes.
    The interim final rule provided significant flexibility for 
recipients to determine which households, populations, communities, or 
small businesses have been impacted and/or disproportionately impacted 
by the pandemic and to identify appropriate responses. The interim 
final rule included several provisions to provide simple methods for 
recipients to identify impacts and design programs to address those 
impacts. First, the interim final rule allowed recipients to 
demonstrate a negative economic impact on a population or class and 
provide assistance to households or small businesses that fall within 
that population or class. In such cases, the recipient need only 
demonstrate that an individual household or business is within the 
class that experienced a negative economic impact, rather than 
requiring a recipient to demonstrate that each individual household or 
small business experienced a negative economic impact, because the 
impact was already identified for the class.
    Second, in the interim final rule, Treasury presumed that certain 
populations have been impacted or disproportionately impacted and are 
thus eligible for services that respond to these impacts or 
disproportionate impacts. Specifically, the interim final rule 
permitted recipients to presume that households that experienced 
unemployment, increased food or housing insecurity, or are low- or 
moderate-income experienced a negative economic impact from the 
pandemic. The interim final rule also permitted recipients to presume 
that certain services provided in Qualified Census Tracts (QCTs), to 
individuals living in QCTs, or by Tribal governments are responsive to 
disproportionate impacts of the pandemic. In addition to the 
populations presumed to be impacted or disproportionately impacted, 
under the interim final rule, recipients could identify other impacted 
households or classes, as described above, as well as other 
populations, households, or geographic areas that are 
disproportionately impacted by the pandemic.
    Third, as mentioned previously, the interim final rule included a 
non-exhaustive list of uses of funds that Treasury identified as 
responsive to the impacts or disproportionate impacts of the pandemic. 
Treasury refers to these as ``enumerated eligible uses.''
    To summarize, the interim final rule identified certain populations 
that are presumed to be impacted by the pandemic (and specific 
enumerated uses of funds that are responsive to that impact) and 
populations that are presumed to be disproportionately impacted by the 
pandemic (and specific enumerated uses of funds that are responsive to 
those disproportionate impacts). In addition, the interim final rule 
provided standards for recipients to assess whether additional uses of 
funds, beyond the enumerated eligible uses, are eligible for impacted 
and disproportionately impacted populations and permitted recipients to 
identify other households or classes that experienced impacts of the 
pandemic or disproportionate impacts of the pandemic.
Rule Structure
    Public Comment: Many commenters expressed concern regarding the 
structure of the eligible uses, indicating they found the structure of 
the public health and negative economic impacts section of the interim 
final rule to be confusing or difficult to navigate. Other commenters 
indicated that they understood the enumerated uses to be the only 
eligible uses and/or the presumed eligible populations to be the only 
eligible populations. Several commenters expressed frustration about 
the number of eligible uses specifically enumerated in the interim 
final rule, which they considered too few, and commenters proposed a 
wide range of additional enumerated eligible uses (for further 
discussion, see the section Public Health and section Negative Economic 
Impacts). Commenters expressed concern with pursuing uses of funds not 
explicitly enumerated in the eligible use section or uncertainty 
regarding the broad flexibility provided under the interim final rule 
to pursue additional programs that respond to the public health or 
negative economic impacts of the pandemic or the process for doing so.
    Treasury Response: Treasury recognizes that many commenters felt 
the structure of the interim final rule could be clarified. These 
comments are consistent with many of the questions that Treasury has 
received from recipients, which requested clarification regarding the 
category their desired response fits into. Treasury observes that these 
comments and questions generally fall into four categories: (1) How to 
identify the correct public health or negative economic impact category 
for a particular response, (2) how to identify whether a particular use 
is eligible, (3) how to identify an impacted or disproportionately 
impacted class, and (4) whether an enumerated use can be provided to a 
class other than those presumed impacted or disproportionately 
impacted. In response to comments, Treasury is adjusting the structure 
of the public health and negative economic impacts eligible use section 
of the final rule to improve clarity and make it easier for recipients 
to interpret and apply the final rule.
    Specifically, Treasury is restructuring the rule to aid recipients 
in determining whether a particular response is eligible and how the 
particular response might be eligible under a particular category. This 
restructuring reinforces the fundamental criteria that a use of funds 
is eligible based on its responsiveness to a public health or negative 
economic impact experienced by individuals, households, small 
businesses, nonprofits, or impacted industries (together 
``beneficiaries'').\18\ This restructuring is intended to make the rule 
easier to navigate and to implement, including any criteria or 
conditions on particular uses of funds.
---------------------------------------------------------------------------

    \18\ Note that small businesses, nonprofits, and industries may 
also function as subrecipients. For additional information on these 
distinctions see section Distinguishing Subrecipients versus 
Beneficiaries.
---------------------------------------------------------------------------

    The reorganization of the public health and negative economic 
impacts section of the final rule is also intended to clarify the 
enumerated eligible uses described in the interim final rule. The 
reorganization itself is not intended to change the scope of the 
enumerated uses that were included in the interim final rule or that 
were allowable under the interim final rule. In some cases, specific 
enumerated uses are being altered, and those changes are discussed

[[Page 4343]]

as changes within the section on that enumerated use.
    The final rule streamlines and aligns services and standards that 
are generally applicable or are provided for public health purposes. 
Under this approach, eligible uses to respond to the public health 
emergency are organized based on the type of public health problem: (1) 
COVID-19 mitigation and prevention, (2) medical expenses, (3) 
behavioral health care, and (4) preventing and responding to violence. 
Under this approach, eligible uses to respond to the negative economic 
impacts of the public health emergency are organized based on the type 
of beneficiary: (1) Assistance to households, (2) assistance to small 
businesses, and (3) assistance to nonprofits, alongside a fourth 
standalone eligibility category for aid to travel, tourism, 
hospitality, and other impacted industries. The first three categories, 
assistance to households, small businesses, and nonprofits, include 
enumerated eligible uses for impacted and disproportionately impacted 
beneficiaries. This change in structure is intended to provide a 
framework that clearly identifies the intended beneficiaries of uses of 
funds and provides clarity about what types of assistance are 
``responsive to the pandemic or its negative economic impacts'' for 
these beneficiaries.
a. Standards for Identifying a Public Health or Negative Economic 
Impact
Standards: Designating a Public Health Impact
    Public Comment: Many commenters expressed uncertainty about how to 
determine whether a use of funds, beyond those specifically enumerated 
as eligible, might be an eligible public health response. For example, 
many commenters submitted questions asking whether specific uses of 
funds would be eligible. Others described what they considered to be 
impacts of the pandemic and argued that uses of funds to respond to 
these issues should be eligible. Some commenters requested that 
Treasury provide additional detail to guide their assessments of 
eligible uses of funds. For example, a commenter requested more 
clarification around exactly what and whose medical expenses can be 
covered. These comments ranged in their specificity and covered the 
full range of the enumerated eligible uses.
    Treasury Response: Treasury is clarifying that when assessing 
whether a program or service is an eligible use to respond to the 
public health impacts of the COVID-19 public health emergency, the 
Department will consider the two eligibility requirements discussed 
below. These standards apply to all proposed public health uses.
    First, there must be a negative public health impact or harm 
experienced by an individual or a class. For ease of administration, 
the interim final rule allowed, and the final rule maintains the 
ability for, recipients to identify a public health impact on a 
population or group of individuals, referred to as a ``class,'' and to 
provide assistance to that class. In determining whether an individual 
is eligible for a program designed to address a harm experienced by a 
class, the recipient need only document that the individual is within 
the class that experienced a public health impact, see section 
Standards: Designating Other Impacted Classes. In the case of some 
impacts, for example impacts of COVID-19 itself that are addressed by 
providing prevention and mitigation services, such a class could 
reasonably include the general public.
    Second, the program, service, or other intervention must address or 
respond to the identified impact or harm. The final rule maintains the 
interim final rule requirement that eligible uses under this category 
must be in response to the disease itself or other public health harms 
that it caused.\19\
---------------------------------------------------------------------------

    \19\ In designing an intervention to mitigate COVID-19, the 
recipient should consider guidance from public health authorities, 
particularly the Centers for Disease Control and Prevention (CDC), 
in assessing appropriate COVID-19 mitigation and prevention 
strategies (see Centers for Disease Control and Prevention, COVID-
19, https://www.cdc.gov/coronavirus/2019-ncov/index.html). A program 
or service that imposes conditions on participation in or acceptance 
of the service that would undermine efforts to stop the spread of 
COVID-19 or discourage compliance with practices in line with CDC 
guidance for stopping the spread of COVID-19 is not a permissible 
use of funds.
---------------------------------------------------------------------------

    Responses must be reasonably designed to benefit the individual or 
class that experienced the public health impact or harm. Uses of funds 
should be assessed based on their responsiveness to their intended 
beneficiaries and the ability of the response to address the impact or 
harm experienced by those beneficiaries.
    Responses must also be related and reasonably proportional to the 
extent and type of public health impact or harm experienced. Uses that 
bear no relation or are grossly disproportionate to the type or extent 
of harm experienced would not be eligible uses. Reasonably proportional 
refers to the scale of the response compared to the scale of the harm. 
It also refers to the targeting of the response to beneficiaries 
compared to the amount of harm they experienced. In evaluating whether 
a use is reasonably proportional, recipients should consider relevant 
factors about the harm identified and the response. For example, 
recipients may consider the size of the population impacted and the 
severity, type, and duration of the impact. Recipients may also 
consider the efficacy, cost, cost-effectiveness, and time to delivery 
of the response.
    If a recipient intends to fund capital expenditures in response to 
the public health impacts of the pandemic, recipients should refer to 
the section Capital Expenditures for details about the eligibility of 
capital expenditures.
Standards: Designating a Negative Economic Impact
    Public Comment: Many commenters expressed uncertainty about how to 
determine whether uses of funds, beyond those specifically enumerated 
as eligible, might be eligible responses to negative economic impacts. 
For example, many commenters submitted questions asking whether 
specific uses of funds would be eligible. Others described what they 
considered to be impacts of the pandemic and argued that uses of funds 
to respond to these issues should be eligible. Some commenters 
requested that Treasury provide additional detail to guide their 
assessments of eligible uses of funds. These comments ranged in their 
specificity and covered the full range of eligible uses to respond to 
negative economic impacts. Several commenters asked for clarification 
about what types of food assistance would be considered eligible. 
Another commenter requested that the establishment of outdoor dining be 
eligible. Many commenters inquired about homeless shelters as an 
eligible use of SLFRF funds.
    Commenters also expressed uncertainty about the ability to 
establish classes, including geographic areas, that experienced a 
negative economic impact or disagreed with the requirement that an 
individual entity be impacted by the pandemic in order to receive 
assistance. For example, a commenter argued that interventions should 
not be limited to individuals or businesses that experienced an 
economic impact and should instead be used broadly to support economic 
growth. These commenters argued that an expenditure that supports a 
more robust economy may help combat the pandemic's negative economic 
impacts, and it can do so even if funding is provided to individuals or 
entities that did not themselves experience a negative economic impact 
during the pandemic.
    Treasury Response: The final rule maintains the standard 
articulated in

[[Page 4344]]

the interim final rule. For clarity, the final rule re-articulates that 
when assessing whether a program or service is an eligible use to 
respond to the negative economic impacts of the COVID-19 public health 
emergency, Treasury will consider the two eligibility requirements 
discussed below.
    First, there must be a negative economic impact, or an economic 
harm, experienced by an individual or a class. The recipient should 
assess whether, and the extent to which, there has been an economic 
harm, such as loss of earnings or revenue, that resulted from the 
COVID-19 public health emergency. A recipient should first consider 
whether an economic harm exists and then whether this harm was caused 
or made worse by the COVID-19 public health emergency. This approach is 
consistent with the text of the statute, which provides that funds in 
this category must be used to ``respond to the public health emergency 
with respect to . . . its negative economic impacts.''
    While economic impacts may either be immediate or delayed, 
individuals or classes that did not experience a negative economic 
impact from the public health emergency would not be eligible 
beneficiaries under this category. As noted above, the interim final 
rule permitted recipients to presume that households that experienced 
unemployment, increased food or housing insecurity, or are low- or 
moderate-income experienced a negative economic impact from the 
pandemic. For discussion of the final rule's approach to this 
presumption, see section Populations Presumed Eligible.
    The final rule also maintains several provisions included in the 
interim final rule and subsequent guidance that are intended to ease 
administration of identifying that the beneficiary experienced a 
negative economic impact or harm. For example, the interim final rule 
allowed, and the final rule maintains the ability for, recipients to 
demonstrate a negative economic impact on a population or group, 
referred to as a ``class,'' and to provide assistance to households, 
small businesses, or nonprofits that fall within that class. In such 
cases, the recipient need only demonstrate that the household, small 
business, or nonprofit is within the class that experienced a negative 
economic impact, see section Standards: Designating Other Impacted 
Classes. This would allow, for example, an internet access assistance 
program for all households with children to support those households' 
ability to participate in healthcare, work, and educational activities 
like extending learning opportunities, among other critical activities. 
In that case, the recipient would only need to identify a negative 
economic impact to the class of ``households with children'' and would 
not need to document or otherwise demonstrate that each individual 
household served experienced a negative economic impact.
    Second, the response must be designed to address the identified 
economic harm or impact resulting from or exacerbated by the public 
health emergency. In selecting responses, the recipient must assess 
whether, and the extent to which, the use would respond to or address 
this harm or impact. This approach is consistent with the text of the 
statute, which provides that funds may be used to ``respond to'' the 
``negative economic impacts'' of the public health emergency 
``including assistance to households, small businesses, and nonprofits, 
or aid to impacted industries such as tourism, travel, and 
hospitality.'' The list of potential responses (``assistance'' or 
``aid'') suggests that responses should address the ``negative economic 
impacts'' of particular types of beneficiaries (e.g., households or 
small businesses).
    Responses must be reasonably designed to benefit the individual or 
class that experienced the negative economic impact or harm. Uses of 
funds should be assessed based on their responsiveness to their 
intended beneficiary and the ability of the response to address the 
impact or harm experienced by that beneficiary.\20\
---------------------------------------------------------------------------

    \20\ For example, expenses such as excessive compensation to 
employees or expenses which have already been reimbursed through 
another federal program, are not reasonably designed to address a 
negative economic impact to a beneficiary.
---------------------------------------------------------------------------

    Responses must also be related and reasonably proportional to the 
extent and type of harm experienced; uses that bear no relation or are 
grossly disproportionate to the type or extent of harm experienced 
would not be eligible uses.\21\ Reasonably proportional refers to the 
scale of the response compared to the scale of the harm. It also refers 
to the targeting of the response to beneficiaries compared to the 
amount of harm they experienced; for example, it may not be reasonably 
proportional for a cash assistance program to provide assistance in a 
very small amount to a group that experienced severe harm and in a much 
larger amount to a group that experienced relatively little harm. In 
evaluating whether a use is reasonably proportional, recipients should 
consider relevant factors about the harm identified and the response. 
For example, recipients may consider the size of the population 
impacted and the severity, type, and duration of the impact. Recipients 
may also consider the efficacy, cost, cost-effectiveness, and time to 
delivery of the response.
---------------------------------------------------------------------------

    \21\ For example, a program or service that imposes conditions 
on participation in or acceptance of the service that would 
undermine efforts to stop the spread of COVID-19 or discourage 
compliance with practices in line with CDC guidance for stopping the 
spread of COVID-19 is not a permissible use of funds.
---------------------------------------------------------------------------

    Finally, recipients should be aware of the distinction between 
beneficiaries of funds and subrecipients; a recipient may provide 
services to beneficiaries through subrecipients that did not experience 
a negative economic impact, see section Distinguishing Subrecipients 
versus Beneficiaries. That is, a recipient may award SLFRF funds to an 
entity that did not experience a negative economic impact in order to 
implement a program or provide a service to beneficiaries on its 
behalf. Such transfers, when implementing a public health or negative 
economic impact response, should be responsive to and designed to 
benefit individuals, households, small businesses, nonprofits, or 
impacted industries that did experience a public health or negative 
economic impact.
Determining the Appropriate Eligible Use Category
    Public Comment: Some commenters expressed uncertainty about how to 
analyze negative economic impacts to different entities (e.g., 
households, small businesses, nonprofits). For example, commenters 
asked whether a nonprofit, which did not experience a negative economic 
impact itself, could be granted funds to provide services to 
individuals experiencing homelessness, who did experience negative 
economic impacts. Other commenters proposed providing assistance to 
support the expansion of small businesses, under the theory that this 
would create more job opportunities for unemployed workers who 
experienced negative economic impacts.
    Treasury Response: In the final rule, Treasury is clarifying that 
recipients should assess a potential use of funds based on which 
beneficiary experienced the negative economic impact, in other words, 
the households, small businesses, nonprofits, or impacted industries 
that experienced the negative economic impact.
    Treasury notes that recipients may award SLFRF funds to many 
different types of organizations to carry out eligible uses of funds 
and serve beneficiaries on behalf of a recipient.

[[Page 4345]]

When a recipient provides funds to another entity to carry out eligible 
uses of funds and serve beneficiaries the entity becomes a subrecipient 
(see section Distinguishing a Subrecipient versus a Beneficiary). For 
example, a recipient may grant funds to a nonprofit organization to 
provide food assistance (an eligible use) to low-income households (the 
beneficiaries). Recipients only need to assess whether the 
beneficiaries experienced a negative economic impact and whether the 
eligible use responds to that impact, consistent with the two-part 
framework described above; the organization carrying out the eligible 
use does not need to have experienced a negative economic impact if it 
is serving as the vehicle for reaching the beneficiaries. When making 
determinations about how to implement a program, recipients should 
consider whether that method of program implementation is an effective 
and efficient method to implement the program and do so in accordance 
with the Uniform Guidance provisions that govern procurements and sub-
granting of federal funds, as applicable.
    As noted above, recipients should analyze eligible uses based on 
the beneficiary of the assistance or the entity that experienced a 
negative economic impact. Assistance to a small business or to an 
impacted industry must respond to a negative economic impact 
experienced by that small business or industry. Recipients may not 
provide assistance to small businesses or impacted industries that did 
not experience a negative economic impact, although recipients can 
identify negative economic impacts for classes, rather than individual 
businesses, and may also presume that small businesses in certain areas 
experienced impacts; see section General Provisions: Structure and 
Standards and section Assistance to Small Businesses for details.
    Several examples illustrate the application of these concepts. For 
example, a recipient could provide assistance to households via a 
contract with a business to create subsidized jobs for the long-term 
unemployed; in this case the business is a subrecipient and need not 
have experienced a negative economic impact, but the recipient would 
need to identify a specific connection between the assistance provided 
and addressing the negative economic impact experienced by the 
unemployed households. The recipient could, for instance, document the 
subsidized jobs created under the contract and their reservation for 
long-term unemployed individuals. Similarly, a recipient might provide 
assistance to a small business that experienced a pandemic-related loss 
of revenue. This small business is a beneficiary and may use those 
funds in many ways, potentially including hiring or retaining staff. 
However, general assistance to a business that did not experience a 
negative economic impact under the theory that this assistance 
generally grows the economy and therefore enhances opportunities for 
unemployed workers would not be an eligible use, because such 
assistance is not reasonably designed to impact the individuals or 
classes that experienced a negative economic impact. In other words, 
there is not a reasonable connection between the assistance provided 
and an impact on the beneficiaries. Such an activity would be 
attenuated from and thus not reasonably designed to benefit the 
households that experienced the negative economic impact.
b. Populations Presumed Eligible
Presumed Eligibility: Impacted and Disproportionately Impacted 
Households and Communities
    Background: As noted above, the interim final rule allowed 
recipients to presume that certain households were impacted or 
disproportionately impacted by the pandemic and thus eligible for 
responsive programs or services. Specifically, under the interim final 
rule, recipients could presume that a household or population that 
experienced unemployment, experienced increased food or housing 
insecurity, or is low- or moderate-income experienced negative economic 
impacts resulting from the pandemic, and recipients may provide 
services that respond to these impacts.
    The interim final rule also recognized that pre-existing health, 
economic, and social disparities contributed to disproportionate 
pandemic impacts in certain communities and allowed for a broader list 
of enumerated eligible uses to respond to the pandemic in 
disproportionately impacted communities. Under the interim final rule, 
recipients were allowed to presume that families residing in QCTs or 
receiving services provided by Tribal governments were 
disproportionately impacted by the pandemic.
Definition of Low- and Moderate-Income
    Public Comment: As noted earlier, many commenters sought a 
definition for ``low- and moderate-income'' to provide recipients 
greater clarity on which specific households could be presumed to be 
impacted by the pandemic.
    Treasury Response: The final rule maintains the presumptions 
identified in the interim final rule and defines low- and moderate-
income for the purposes of determining which households and populations 
recipients may presume to have been impacted. To simplify the 
administration of this presumption, the final rule adopts a definition 
of low- and moderate-income based on thresholds established and used in 
other federal programs.
    Definitions. The final rule defines a household as low income if it 
has (i) income at or below 185 percent of the Federal Poverty 
Guidelines (FPG) for the size of its household based on the most 
recently published poverty guidelines by the Department of Health and 
Human Services (HHS) or (ii) income at or below 40 percent of the Area 
Median Income (AMI) for its county and size of household based on the 
most recently published data by the Department of Housing and Urban 
Development (HUD).\22\
---------------------------------------------------------------------------

    \22\ AMI is also often referred to as median family income for 
the area. Since AMI is synonymous with this term and used more 
generally, the final rule refers to AMI.
---------------------------------------------------------------------------

    The final rule defines a household as moderate income if it has (i) 
income at or below 300 percent of the FPG for the size of its household 
based on the most recently published poverty guidelines by HHS or (ii) 
income at or below 65 percent of the AMI for its county and size of 
household based on the most recently published data by HUD.\23\
---------------------------------------------------------------------------

    \23\ For the six New England states of Connecticut, Maine, 
Massachusetts, New Hampshire, Rhode Island, and Vermont, HUD 
provides AMI for towns rather than counties. Recipients in these 
states should use the AMI corresponding to their town when 
determining thresholds for both low and moderate income.
---------------------------------------------------------------------------

    Recipients may determine whether to measure income levels for 
specific households or for a geographic area based on the type of 
service to be provided. For example, recipients developing a program 
that serves specific households (e.g., a subsidy for internet access, a 
childcare program) may measure income at the household level. 
Recipients providing a service that reaches a general geographic area 
(e.g., a park) may measure median income of that area.
    Further, recipients should generally use the income threshold for 
the size of the household to be served (e.g., when providing childcare 
to a household of five, recipients should reference the income 
threshold for a household of five); however, recipients may use the 
income threshold for a default household size of three if providing

[[Page 4346]]

services that reach a general geographic area or if doing so would 
simplify administration of the program to be provided (e.g., when 
developing a park, recipients should use the income threshold for a 
household size of three and compare it to median income of the 
geographic area to be served).
    Note that recipients can also identify and serve other classes of 
households that experienced negative economic impacts or 
disproportionate impacts from the pandemic; recipients can identify 
these classes based on their income levels, including above the levels 
defined as low- and moderate-income in the final rule. For example, a 
recipient may identify that households in their community with incomes 
above the final rule threshold for low-income nevertheless experienced 
disproportionate impacts from the pandemic and provide responsive 
services. See section General Provisions: Standards for Identifying 
Other Eligible Populations for details on applicable standards.
    Applicable levels. For reference, the FPG is commonly referred to 
as the federal poverty level (FPL) and is related to--although distinct 
from--the U.S. Census Bureau's poverty threshold. The final rule uses 
the FPG when referring specifically to the HHS guidelines, as these are 
the quantitative metrics used for determining low- and moderate-income 
households.
    The FPG by household size for 2021 is included in the table below. 
Recipients should refer to HHS Poverty Guidelines for this information, 
which is updated annually and available on the HHS website.\24\ For 
calculating the thresholds of 40 percent and 65 percent of AMI, 
recipients should refer to the annual HUD Section 8 50 percent income 
limits by county and household size published by HUD and available on 
the HUD website; in particular, recipients should calculate the 40 
percent threshold as 0.8 times the 50 percent income limit, and 
recipients should calculate the 65 percent threshold as 1.3 times the 
50 percent income limit.\25\ Finally, for median income of Census 
Tracts and other geographic areas, recipients should refer to the most 
recent American Community Survey 5-year estimates available through the 
Census website.\26\
---------------------------------------------------------------------------

    \24\ U.S. Department of Health and Human Service, HHS Poverty 
Guidelines for 2021, available at https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.
    \25\ U.S. Department of Housing and Urban Development, FY 2021 
Section 8 Income Limits, available at https://www.huduser.gov/portal/datasets/il/il21/Section8-FY21.xlsx. Recipients may refer to 
the list of counties (and New England towns) identified by state and 
metropolitan area for identifying the appropriate area. U.S. 
Department of Housing and Urban Development, FY 2021 List of 
Counties (and New England Towns) Identified by State and 
Metropolitan Area, available at https://www.huduser.gov/portal/datasets/il/il21/area-definitions-FY21.pdf.
    \26\ The U.S. Census Bureau provides an interactive map: U.S. 
Census Bureau, Median Household Income State Selection Map, 
available at https://data.census.gov/cedsci/map?q=Median%20Household%20Income&g=0100000US%2404000%24001&tid=ACSST5Y2019.S1901&cid=S1901_C01_012E&vintage=2019. The U.S. Census Bureau 
also provides an interactive table: U.S. Census Bureau, Median 
Household Income In The Past 12 Months (In 2019 Inflation-Adjusted 
Dollars), available at https://data.census.gov/cedsci/table?q=b19013&tid=ACSDT5Y2019.B19013&hidePreview=true.

                                         2021 Federal Poverty Guidelines
----------------------------------------------------------------------------------------------------------------
                                                                   48 contiguous
                                                                  states and the
                         Household size                             District of       Alaska          Hawaii
                                                                     Columbia
----------------------------------------------------------------------------------------------------------------
1...............................................................         $12,880         $16,090         $14,820
2...............................................................          17,420          21,770          20,040
3...............................................................          21,960          27,450          25,260
4...............................................................          26,500          33,130          30,480
5...............................................................          31,040          38,810          35,700
6...............................................................          35,580          44,490          40.920
7...............................................................          40,120          50,170          46,140
8...............................................................          44,660          55,850          51,360
----------------------------------------------------------------------------------------------------------------
For families/households with more than 8 persons, add the following amounts for each additional person:
48 Contiguous States and the District of Columbia: $4,540.
Alaska: $5,680.
Hawaii: $5,220.
Source: ``HHS Poverty Guidelines for 2021,'' available at https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.

    Rationale. In defining low income, the final rule uses both the FPG 
and AMI to account for national trends and regional differences. The 
metric of 185 percent of FPG aligns with some other programs; for 
instance, under the National School Lunch Program, students with 
household incomes under 185 percent of FPG qualify for free or reduced-
price lunch, and schools often use eligibility for free or reduced-
price lunch as an indicator of low-income status under Title 1-A of the 
Elementary and Secondary Education Act. Eligibility for other programs, 
such as the Federal Communications Commission's e-Rate program and the 
Special Supplemental Nutrition Program for Women, Infants and Children 
employ this metric as well. In addition, 185 percent of the FPG for a 
family of four is $49,025, which is approximately the wage earnings for 
a two-earner household in which both earners receive the median wage in 
occupations, such as waiters and waitresses and hotel clerks, that were 
heavily impacted by COVID-19.\27\ This measure is targeted toward those 
at the bottom of the income distribution and thus helps to promote use 
of SLFRF funds towards populations with the greatest needs. At the same 
time, with approximately one-quarter of Americans below 185 percent of 
the poverty threshold, this approach is broad enough to facilitate use 
of SLFRF funds across many jurisdictions.\28\ Because regions have 
different cost and income levels, this definition also allows for 
upward adjustment based on AMI for those regions where 40 percent of 
AMI exceeds 185 percent of FPG. The metric of 40 percent of AMI is 
based on the midpoint of values often used to designate certain 
categories of low-income households; specifically, it is the midpoint 
of the 30 percent income limit and the 50 percent income limit

[[Page 4347]]

used in programs such as the Community Development Block Grant (CDBG) 
Program.
---------------------------------------------------------------------------

    \27\ See U.S. Bureau of Labor Statistics, Occupational 
Employment and Wage Estimates, https://www.bls.gov/oes/current/oes_nat.htm (last visited December 7, 2021).
    \28\ U.S. Census Bureau, Poverty Status by State, https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pov/pov-46.html (last visited December 7, 2021).
---------------------------------------------------------------------------

    In defining moderate income, the final rule uses both the FPG and 
AMI to account for national trends and regional differences. While 
there are different definitions of moderate income, 300 percent of FPG 
falls within the range commonly used by researchers.\29\ Analysis of 
median wages among a sample of occupations likely impacted by the 
pandemic also suggests that an income cutoff of 300 percent of FPG 
would include many households with workers in such occupations.\30\ 
Moreover, the metric of 300 percent of FPG covers households that, 
while above the poverty line, often lack economic security.\31\ 
Treasury determined the AMI threshold for moderate income by 
maintaining the same ratio of FPG multiplier to AMI multiplier as in 
the definition of low income. This anchors the threshold to the 
existing definitions of moderate income from the literature while 
taking into account geographical variation in income and expenses in 
the same manner as the definition of low income.
---------------------------------------------------------------------------

    \29\ For instance, Melissa Kearney et al. (2013) cap the 
``struggling lower middle-income class'' at 250 percent of the 
federal poverty level, while Isabel Sawhill and Edward Rodrigue 
(2015) define the ``middle class'' as those with incomes of at least 
300 percent of the poverty line. Melissa Kearney et al., ``A Dozen 
Facts about America's Struggling Lower-Middle Class,'' The Hamilton 
Project (December 2013), https://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/THP_12LowIncomeFacts_Final.pdf; 
Isabel Sawhill and Edward Rodrigue, ``An Agenda for Reducing Poverty 
and Improving Opportunity,'' Brookings Institution, https://www.brookings.edu/wp-content/uploads/2016/07/Sawhill_FINAL.pdf.
    \30\ Data on median annual wages from: U.S. Bureau of Labor and 
Statistics, Occupational Employment and Wage Statistics, available 
at https://www.bls.gov/oes/current/oes_nat.htm (last visited 
December 7, 2021).
    \31\ For instance, households earning between 200 and 300 
percent of the FPG have significantly higher rates of food and 
housing insecurity than those earning above 300 percent of the FPG. 
Table 1, Kyle J. Caswell and Stephen Zuckerman, Food Insecurity, 
Housing Hardship, and Medical Care Utilization, Urban Institute 
(June 2018), https://www.urban.org/sites/default/files/publication/98701/2001896_foodinsecurity_housinghardship_medicalcareutilization_finalized.pdf.
---------------------------------------------------------------------------

Eligibility Presumptions
    Public Comment: Many commenters believed that a broader range of 
groups should be considered presumptively impacted and 
disproportionately impacted, arguing that many households had been 
affected by the pandemic and that broader presumed eligibility would 
help recipients provide assistance quickly and effectively.
    Treasury also received many comments on the presumption that 
families living in QCTs or receiving services from Tribal governments 
were disproportionately impacted by the pandemic. While many commenters 
supported the interim final rule's recognition of disproportionate 
impacts of the pandemic on low-income communities, many commenters 
disagreed with treating QCTs as the only presumed eligible group of 
disproportionately impacted households, apart from households served by 
Tribal governments. While acknowledging a potential increase in 
administrative burden, commenters recommended that Treasury presume 
other households or geographic areas, in addition to QCTs, were 
disproportionately impacted; suggestions included all low- and 
moderate-income households, geographic areas designated as Opportunity 
Zones, Difficult Development Areas (DDAs), areas with a certain amount 
of Real Estate Advantage Program (REAP) recipients, or use of 
eligibility criteria from the Community Reinvestment Act. One commenter 
generally recommended that a clearer definition of ``disproportionately 
impacted'' should be provided and that any definition should include 
communities of color and people of limited means. Another recommended 
specific eligibility for people that had recently interacted with the 
criminal justice system. Many commenters representing Tribal 
governments and groups recommended a presumption of eligibility for all 
Tribal uses of funds, clarification that off reservation members 
remained eligible, and broad flexibility on use of funds.
    Additionally, commenters noted that some areas are technically 
eligible to be QCTs but fall short because of the aggregate population 
of eligible tracts. One commenter noted that these areas should be 
considered the same as QCTs for the purpose of SLFRF funds. Some 
commenters argued that rural counties typically have few QCTs despite 
high levels of poverty and disruption caused by the COVID-19 pandemic. 
Other rural commenters recommended that the designation be by county 
rather than at a more granular level, arguing that the QCT designation 
is biased towards urban areas and understates the harm done to rural 
America. Many commenters representing Tribal governments supported the 
presumption that services provided by Tribal governments respond to 
disproportionate impacts.
Treasury Response
    Summary: While households residing in QCTs or served by Tribal 
governments were presumed to be disproportionately impacted, Treasury 
emphasizes that under the interim final rule recipients could also 
identify other households, populations, or geographic areas that were 
disproportionately impacted by the pandemic and provide services to 
respond.
    The final rule maintains the presumptions identified in the interim 
final rule, as well as recipients' ability to identify other impacted 
or disproportionately impacted classes. The final rule also allows 
recipients to presume that low-income households were 
disproportionately impacted, and as discussed above, defines low- and 
moderate-income. Finally, under the final rule recipients may also 
presume that households residing in the U.S. territories or receiving 
services from territorial governments were disproportionately impacted.
    Households presumed to be impacted: Impacted households are those 
that experienced a public health or negative economic impact from the 
pandemic.
    With regard to public health impacts, recipients may presume that 
the general public experienced public health impacts from the pandemic 
for the purposes of providing services for COVID-19 mitigation and 
behavioral health. In other words, recipients may provide a wide range 
of enumerated eligible uses in these categories to the general public 
without further analysis. As discussed in the introduction, COVID-19 as 
a disease has directly affected the health of tens of millions of 
Americans, and efforts to prevent and mitigate the spread of the 
disease are needed and in use across the country. Further, the stress 
of the pandemic and resulting recession have affected nearly all 
Americans. Accordingly, the final rule presumes that the general public 
are impacted by and eligible for services to respond to COVID-19 
mitigation and prevention needs, as well as behavioral health needs.
    With regard to negative economic impacts, as with the interim final 
rule, under the final rule recipients may presume that a household or 
population that experienced unemployment, experienced increased food or 
housing insecurity, or is low- or moderate-income experienced negative 
economic impacts resulting from the pandemic. The final rule's 
definition of low- and moderate-income, by providing standard metrics 
based on widely available data, is intended to simplify administration 
for recipients.
    Households presumed to be disproportionately impacted: 
Disproportionately impacted households are those that experienced a

[[Page 4348]]

disproportionate, or meaningfully more severe, impact from the 
pandemic. As discussed in the interim final rule, pre-existing 
disparities in health and economic outcomes magnified the impact of the 
COVID-19 public health emergency on certain households and communities. 
As with the interim final rule, under the final rule recipients may 
presume that households residing in QCTs or receiving services provided 
by Tribal governments were disproportionately impacted by the pandemic. 
In addition, under the final rule recipients may presume that low-
income households were disproportionately impacted by the pandemic. 
Finally, under the final rule recipients may also presume that 
households residing in the U.S. territories or receiving services from 
territorial governments were disproportionately impacted.
    Treasury notes that households presumed to be disproportionately 
impacted would also be presumptively impacted, as these households have 
not only experienced pandemic impacts but have experienced 
disproportionate pandemic impacts; as a result, these households are 
presumptively eligible for responsive services for both impacted and 
disproportionately impacted households.
    Many different geographic, income-based, or poverty-based 
presumptions could be used to designate disproportionately impacted 
populations. The combination of permitting recipients to use QCTs, low-
income households, and services provided by Tribal or territorial 
governments as presumptions balances these varying methods. 
Specifically, QCTs are a commonly used designation of geographic areas 
based on low incomes or high poverty rates of households in the 
community; for recipients providing geographically targeted services, 
QCTs may provide a simple metric with readily available maps for use. 
However, Treasury recognizes that QCTs do not capture all underserved 
populations, including for reasons noted by commenters. By allowing 
recipients to also presume that low-income households were 
disproportionately impacted, the final rule provides greater 
flexibility to serve underserved households or communities. Data on 
household incomes is also readily available at varying levels of 
geographic granularity (e.g., Census Tracts, counties), again 
permitting flexibility to adapt to local circumstances and needs. 
Finally, Treasury notes that, as discussed further below, recipients 
may also identify other households, populations, and communities 
disproportionately impacted by the pandemic, in addition to those 
presumed to be disproportionately impacted.
    Additionally, Tribal and territorial governments may face both 
disproportionate impacts of the pandemic and administrability 
challenges with operationalizing the income-based standard; therefore, 
Treasury has presumed that services provided by these governments 
respond to disproportionate pandemic impacts. Given a lack of regularly 
published data on household incomes in most territories,\32\ as well as 
a lack of poverty guidelines developed for these jurisdictions,\33\ it 
may be highly challenging to assess disproportionate impact in these 
communities according to an income- or poverty-based standard. 
Similarly, data on incomes in Tribal communities are not readily 
available.\34\ Finally, as described in the sections on Public Health 
and Negative Economic Impacts, Tribal communities have faced 
particularly severe health and economic impacts of the pandemic. 
Similarly, available research suggests that preexisting health and 
economic disparities in the territories amplified the impact of the 
pandemic on these communities.\35\
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    \32\ For instance, the American Community Survey does not 
include all territories. U.S. Census Bureau, Areas Published, 
https://www.census.gov/programs-surveys/acs/geography-acs/areas-published.html (last visited November 9, 2021).
    \33\ U.S. Department of Health and Human Services, supra note 
24.
    \34\ For instance, data from the American Community Survey is 
based on geographical location rather than Tribal membership. U.S. 
Census Bureau, My Tribal Area, https://www.census.gov/Tribal/Tribal_glossary.php.
    \35\ Lina Stoylar et. al., Challenges in the U.S. Territories: 
COVID-19 and the Medicaid Financing Cliff, Kaiser Family Foundation 
(May 18, 2021), https://www.kff.org/coronavirus-covid-19/issue-brief/challenges-in-the-u-s-territories-covid-19-and-the-medicaid-financing-cliff/.
---------------------------------------------------------------------------

Categorical Eligibility
    Public Comment: Several commenters suggested that the final rule 
permit recipients to rely on a beneficiary's eligibility for other 
federal benefits programs as an easily administrable proxy for 
identifying a group or population that experienced a negative economic 
impact as a result of the COVID-19 public health emergency (i.e., 
categorical eligibility). In other words, a recipient would determine 
that individuals or households are eligible for an SLFRF-funded program 
based on the individual or household's eligibility in another program, 
typically another federal benefit program. Commenters noted that 
categorical eligibility is a common policy in program administration 
that can significantly ease administrative burden on both program 
administrators and beneficiaries.
    Treasury Response: Treasury agrees that allowing recipients to 
identify impacted and disproportionately impacted beneficiaries based 
on their eligibility for other programs with similar income tests would 
ease administrative burden. To the extent that the other program's 
eligibility criteria align with a population or class that experienced 
a negative economic impact of the pandemic, this approach is also 
consistent with the process allowed under the final rule for recipients 
to determine that a class has experienced a negative economic impact, 
and then document that an individual receiving services is a member of 
the class. For these reasons, the final rule recognizes categorical 
eligibility for the following programs and populations:
    <bullet> Impacted households. Treasury will recognize a household 
as impacted if it otherwise qualifies for any of the following 
programs:
    [cir] Children's Health Insurance Program (CHIP)
    [cir] Childcare Subsidies through the Child Care and Development 
Fund (CCDF) Program
    [cir] Medicaid
    [cir] National Housing Trust Fund (HTF), for affordable housing 
programs only
    [cir] Home Investment Partnerships Program (HOME), for affordable 
housing programs only
    <bullet> Disproportionately impacted households. Treasury will 
recognize a household as disproportionately impacted if it otherwise 
qualifies for any of the following programs:
    [cir] Temporary Assistance for Needy Families (TANF)
    [cir] Supplemental Nutrition Assistance Program (SNAP)
    [cir] Free and Reduced-Price Lunch (NSLP) and/or School Breakfast 
(SBP) programs
    [cir] Medicare Part D Low-income Subsidies
    [cir] Supplemental Security Income (SSI)
    [cir] Head Start and/or Early Head Start
    [cir] Special Supplemental Nutrition Program for Women, Infants, 
and Children (WIC)
    [cir] Section 8 Vouchers
    [cir] Low-Income Home Energy Assistance Program (LIHEAP)
    [cir] Pell Grants
    [cir] For services to address educational disparities, Treasury 
will recognize Title

[[Page 4349]]

I eligible schools \36\ as disproportionately impacted and responsive 
services that support the school generally or support the whole school 
as eligible
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    \36\ Title I eligible schools means schools eligible to receive 
services under section 1113 of Title I, Part A of the Elementary and 
Secondary Education Act of 1965, as amended (20 U.S.C. 6313), 
including schools served under section 1113(b)(1)(C) of that Act.
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c. Standards for Identifying Other Eligible Populations
Standards: Designating Other Impacted Classes
    Public Comment: Treasury received multiple comments requesting 
additional clarification about how classes of impacted individuals may 
be designated, as well as questions asking whether recipients must 
demonstrate a specific public health or negative economic impact to 
each entity served (e.g., each household receiving assistance under a 
program). There were several comments requesting that specific 
geographic designations, like a county or Impact Zone, be eligible to 
use as a determining boundary.
    Treasury Response: The interim final rule allowed, and the final 
rule maintains, the ability for recipients to demonstrate a public 
health or negative economic impact on a class and to provide assistance 
to beneficiaries that fall within that class. Consistent with the scope 
of beneficiaries included in sections 602(c)(1)(A) and 603(c)(1)(A) of 
the Social Security Act, Treasury is clarifying that a recipient may 
identify such impacts for a class of households, small businesses, or 
nonprofits. In such cases, the recipient need only demonstrate that the 
household, small business, or nonprofit is within the relevant class. 
For example, a recipient could determine that restaurants in the 
downtown area had generally experienced a negative economic impact and 
provide assistance to those small businesses to respond. When providing 
this assistance, the recipient would only need to demonstrate that the 
small businesses receiving assistance were restaurants in the downtown 
area. The recipient would not need to demonstrate that each restaurant 
served experienced its own negative economic impact.
    In identifying an impacted class and responsive program, service, 
or capital expenditure, recipients should consider the relationship 
between the definition of the class and proposed response. Larger and 
less-specific classes are less likely to have experienced similar harms 
and thus the responses are less likely to be responsive to the harms 
identified. That is, as the group of entities being served by a program 
has a wider set of fact patterns, or the type of entities, their 
circumstances, or their pandemic experiences differ more substantially, 
it may be more difficult to determine that the class has actually 
experienced the same or similar negative economic impact and that the 
response is appropriately tailored to address that impact.
Standard: Designating Other Disproportionately Impacted Classes
    Summary of Interim Final Rule: As noted above, the interim final 
rule provided a broad set of enumerated eligible uses of funds in 
disproportionately impacted communities, including to address pre-
existing disparities that contributed to more severe pandemic impacts 
in these communities. The interim final rule presumed that these 
services are eligible uses when provided in a QCT, to families and 
individuals living in QCTs, or when these services are provided by 
Tribal governments. Recipients may also provide these services to 
``other populations, households, or geographic areas disproportionately 
impacted by the pandemic'' and, in identifying these disproportionately 
impacted communities, should be able to support their determination 
that the pandemic resulted in disproportionate public health or 
economic outcomes to the group identified.
    Public Comment: A significant number of commenters expressed 
uncertainty regarding the process for determining eligibility for 
disproportionately impacted communities beyond QCTs. A commenter noted 
that a clearer definition of ``disproportionately impacted'' should be 
delineated and that any definition should include communities of color 
and people of limited means. Some commenters suggested a template or 
checklist to see if an area meets the standard for disproportionately 
impacted communities outside of QCTs. Some commenters stated that QCT 
and non-QCT beneficiaries should be treated the same.
    Treasury Response: Under the interim final rule, presuming 
eligibility for services in QCTs, for populations living in QCTs, and 
for Tribal governments was intended to ease administrative burden, 
providing a simple path for recipients to offer services in underserved 
communities, and is not an exhaustive list of disproportionately 
impacted communities. To further clarify, the final rule codifies the 
interpretive framework discussed above, including presumptions of 
groups disproportionately impacted, as well as the ability to identify 
other disproportionately impacted populations, households, or 
geographies (referred to here as disproportionately impacted classes).
    As discussed in the interim final rule, in identifying other 
disproportionately impacted classes, recipients should be able to 
support their determination that the pandemic resulted in 
disproportionate public health or economic outcomes to the specific 
populations, households, or geographic areas to be served. For example, 
the interim final rule considered data regarding the rate of COVID-19 
infections and deaths in low-income and socially vulnerable 
communities, noting that these communities have experienced the most 
severe health impacts, compared to national averages. Similarly, the 
interim final rule considered the high concentration of low-income 
workers performing essential work, the reduced ability to socially 
distance, and other pre-existing public health challenges, all of which 
correlate with more severe COVID-19 outcomes. The interim final rule 
also considered the disproportionate economic impacts of the pandemic, 
citing, for example, the rate of job losses among low-income persons as 
compared to the general population. The interim final rule then 
identified QCTs, a common, readily accessible, and geographically 
granular method of identifying communities with a large proportion of 
low-income residents, as presumed to be disproportionately impacted by 
the pandemic.
    In other words, the interim final rule identified 
disproportionately impacted populations by assessing the impacts of the 
pandemic and finding that some populations experienced meaningfully 
more severe impacts than the general public. Similarly, to identify 
disproportionately impacted classes, recipients should compare the 
impacts experienced by that class to the typical or average impacts of 
the pandemic in their local area, state, or nationally.
    Recipients may identify classes of households, communities, small 
businesses, nonprofits, or populations that have experienced a 
disproportionate impact based on academic research or government 
research publications, through analysis of their own data, or through 
analysis of other existing data sources. To augment their analysis, or 
when quantitative data is not readily available, recipients may also 
consider qualitative research and sources like resident interviews or

[[Page 4350]]

feedback from relevant state and local agencies, such as public health 
departments or social services departments. In both cases, recipients 
should consider the quality of the research, data, and applicability of 
analysis to their determination.
    In designing a program or service that responds to a 
disproportionately impacted class, a recipient must first identify the 
impact and then identify an appropriate response. To assess 
disproportionate impact, recipients should rely on data or research 
that measures the public health or negative economic impact. An 
assessment of the effects of a response (e.g., survey data on levels of 
resident support for various potential responses) is not a substitute 
for an assessment of the impact experienced by a particular class. Data 
about the appropriateness or desirability of a response may be used to 
assess the reasonableness of a response, once an impact or 
disproportionate impact has been identified but should not be the basis 
for assessing impact.
2. Public Health
Background
    On January 21, 2020, the Centers for Disease Control and Prevention 
(CDC) identified the first case of novel coronavirus in the United 
States.\37\ Since that time, and through present day, the United States 
has faced numerous waves of the virus that have brought acute strain on 
health care and public health systems. At various points in the 
pandemic, hospitals and emergency medical services have seen 
significant influxes of patients; response personnel have faced 
shortages of personal protective equipment; testing for the virus has 
been scarce; and congregate living facilities like nursing homes have 
seen rapid spread.
---------------------------------------------------------------------------

    \37\ Press Release, Centers for Disease Control and Prevention, 
First Travel-related Case of 2019 Novel Coronavirus Detected in 
United States (Jan. 21, 2020), https://www.cdc.gov/media/releases/2020/p0121-novel-coronavirus-travel-case.html.
---------------------------------------------------------------------------

    Since the initial wave of the COVID-19 pandemic, the United States 
has faced several additional major waves that continued to impact 
communities and stretch public health services. The summer 2020 wave 
impacted communities in the south and southwest. As the weather turned 
colder and people spent more time indoors, a wave throughout fall and 
winter 2020 impacted communities in almost every region of the country 
as the virus reached a point of uncontrolled spread and over 3,000 
people died per day due to COVID-19.\38\
---------------------------------------------------------------------------

    \38\ Centers for Disease Control and Prevention, COVID Data 
Tracker: Trends in Number of COVID-19 Cases and Deaths in the US 
Reported to CDC, by State/Territory, https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendscases (last visited December 7, 
2021).
---------------------------------------------------------------------------

    In December 2020, the Food and Drug Administration (FDA) authorized 
COVID-19 vaccines for emergency use, and soon thereafter, mass 
vaccination in the United States began. At the time of the interim 
final rule publication in May 2021, the number of daily new infections 
was steeply declining as rapid vaccination campaigns progressed across 
the country. By summer 2021, COVID-19 cases had fallen to their lowest 
level since early months of the pandemic, when testing was scarce. 
However, throughout late summer and early fall, the Delta variant, a 
more infectious and transmittable variant of the SARS-CoV-2 virus, 
sparked yet another surge. From June to early September, the seven-day 
moving average of reported cases rose from 12,000 to 165,000.\39\
---------------------------------------------------------------------------

    \39\ Id.
---------------------------------------------------------------------------

    As of December 2021, COVID-19 in total has infected over 50 million 
and killed over 800,000 Americans.\40\ Preventing and mitigating the 
spread of COVID-19 continues to require a major public health response 
from federal, state, local, and Tribal governments.
---------------------------------------------------------------------------

    \40\ Centers for Disease Control and Prevention, COVID Data 
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited December 31, 2021).
---------------------------------------------------------------------------

    First, state, local, and Tribal governments across the country have 
mobilized to support the national vaccination campaign. As of December 
2021, more than 80 percent of adults have received at least one dose, 
with more than 470 million total doses administered.\41\ Additionally, 
more than 15 million children over the age of 12 have received at least 
one dose of the vaccine and over 47 million people have received a 
booster dose.\42\ Vaccines for younger children, ages 5 through 11, 
have been approved and are reaching communities and families across the 
country. As new variants continue to emerge globally, the national 
effort to administer vaccinations and other COVID-19 mitigation 
strategies will be a critical component of the public health response.
---------------------------------------------------------------------------

    \41\ Centers for Disease Control and Prevention, COVID Data 
Tracker: COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited 
December 7, 2021).
    \42\ Id.
---------------------------------------------------------------------------

    In early reporting on uses of SLFRF funds, recipients have 
indicated that they plan to put funds to immediate use to support 
continued vaccination campaigns. For example, one recipient has 
indicated that it plans to use SLFRF funds to support a vaccine 
incentive program, providing $100 gift cards to residents at community 
vaccination clinics. The program aimed to target communities with high 
public health needs.\43\ Another recipient reported that it is 
partnering with multiple agencies, organizations, and providers to 
distribute COVID-19 vaccinations to homebound residents in assisted 
living facilities.\44\
---------------------------------------------------------------------------

    \43\ Columbus, Ohio Recovery Plan, https://www.columbus.gov/recovery/.
    \44\ Luzerne County, Pennsylvania Recovery Plan, https://www.luzernecounty.org/DocumentCenter/View/26304/Final-Interim-Recovery-Plan-Performance-Report-83121.
---------------------------------------------------------------------------

    State, local, and Tribal governments have also continued to execute 
other aspects of a wide-ranging public health response, including 
increasing access to COVID-19 testing and rapid at-home tests, contact 
tracing, support for individuals in isolation or quarantine, 
enforcement of public health orders, new public communication efforts, 
public health surveillance (e.g., monitoring case trends and genomic 
sequencing for variants), enhancement to health care capacity through 
alternative care facilities, and enhancement of public health data 
systems to meet new demands or scaling needs.
    State, local, and Tribal governments have also supported major 
efforts to prevent COVID-19 spread through safety measures at key 
settings like nursing homes, schools, congregate living settings, dense 
worksites, incarceration settings, and in other public facilities. This 
has included, for example, implementing infection prevention measures 
or making ventilation improvements.
    In particular, state, local, and Tribal governments have mounted 
significant efforts to safely reopen schools. A key factor in school 
reopening is the ability to implement COVID-19 mitigation strategies 
such as providing masks and other hygiene resources, improving air-
quality and ventilation, increasing outdoor learning and eating spaces, 
testing and contact tracing protocols, and a number of other 
measures.\45\ For example, one recipient described plans to use SLFRF 
funds to further invest in school health resources that were critical 
components of school reopening and reducing the spread of COVID-19 in 
schools. Those investments include the increasing school nurses and 
social

[[Page 4351]]

workers, improved ventilation systems, and other health and safety 
measures.
---------------------------------------------------------------------------

    \45\ This includes implementing mitigation strategies consistent 
with the Centers for Disease Control and Prevention's (CDC) Guidance 
for COVID-19 Prevention in K-12 Schools (November 5, 2021), 
available at https://www.cdc.gov/coronavirus/2019-ncov/community/schools-childcare/k-12-guidance.html.
---------------------------------------------------------------------------

    The need for public health measures to respond to COVID-19 will 
continue moving forward. This includes the continuation of vaccination 
campaigns for the general public, booster doses, and children. This 
also includes monitoring the spread of COVID-19 variants, understanding 
the impact of these variants, developing approaches to respond, and 
monitoring global COVID-19 trends. Finally, the long-term health 
impacts of COVID-19 will continue to require a public health response, 
including medical services for individuals with ``long COVID,'' and 
research to understand how COVID-19 impacts future health needs and 
raises risks for the tens of millions of Americans who have been 
infected.
    The COVID-19 pandemic also negatively impacted other areas of 
public health, particularly mental health and substance use. In January 
2021, over 40 percent of American adults reported symptoms of 
depression or anxiety, up from 11 percent in the first half of 
2019.\46\ The mental health impacts of the pandemic have been 
particularly acute for adults ages 18 to 24, racial and ethnic 
minorities, caregivers for adults, and essential workers, with all 
reporting significantly higher rates of considering suicide.\47\ The 
proportion of children's emergency department visits related to mental 
health has also risen noticeably.\48\ Similarly, rates of substance use 
and overdose deaths have spiked: Preliminary data from the CDC show a 
nearly 30 percent increase in drug overdose mortality from April 2020 
to April 2021, bringing the estimated overdose death toll for a 12-
month period over 100,000 for the first time ever.\49\ The CDC also 
found that 13 percent of adults started or increased substance use to 
cope with stress related to COVID-19 and 26 percent reported having 
symptoms of trauma- and stressor-related disorder (TRSD) related to the 
pandemic.\50\
---------------------------------------------------------------------------

    \46\ Nirmita Panchal et al., The Implications of COVID-19 for 
Mental Health and Substance Abuse (Feb. 10, 2021), https://
www.kff.org/coronaviruscovid-19/issue-brief/the-implications-of-
covid-19-for-mental-health-and-substance-use/
#:~:text=Older%20adults%20are%20also%20 
more,prior%20to%20the%20current%20crisis; Mark [Eacute]. Czeisler et 
al., Mental Health, Substance Abuse, and Suicidal Ideation During 
COVID-19 Pandemic--United States, June 24-30 2020, Morb. Mortal. 
Wkly. Rep. 69(32):1049-57 (Aug. 14, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6932a1.htm.
    \47\ Id.
    \48\ Rebecca T. Leeb et al., Mental Health-Related Emergency 
Department Visits Among Children Aged <18 Years During the COVID 
Pandemic--United States, January 1-October 17, 2020, Morb. Mortal. 
Wkly. Rep. 69(45):1675-80 (Nov. 13, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6945a3.htm.
    \49\ Centers for Disease Prevention and Control, National Center 
for Health Statistics, Provisional Drug Overdose Death Counts, 
https://www.cdc.gov/nchs/nvss/vsrr/drug-overdose-data.htm (last 
visited May 8 December 6, 2021).
    \50\ Panchal, supra note 46; Mark [Eacute]. Czeisler et al., 
supra note 46.
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    Another public health challenge exacerbated by the pandemic was 
violent crime and gun violence, which increased during the pandemic and 
has disproportionately impacted low-income communities.\51\ According 
to the Federal Bureau of Investigation (FBI), although the property 
crime rate fell 8 percent in 2020, the violent crime rate increased 6 
percent in 2020 compared to 2019 data.\52\ In particular, the estimated 
number of aggravated assault offenses rose 12 percent, while murder and 
manslaughter increased 30 percent from 2019 to 2020.\53\ The proportion 
of homicides committed with firearms rose from 73 percent in 2019 to 76 
percent in 2020.\54\ Exposure to violence can create serious short-term 
and long-term harmful effects to health and development, and repeated 
exposure to violence may be connected to negative health outcomes.\55\ 
Addressing community violence as a public health issue may help prevent 
and even reduce additional harm to individuals, households, and 
communities.\56\
---------------------------------------------------------------------------

    \51\ The White House, FACT SHEET: More Details on the Biden-
Harris Administration's Investments in Community Violence 
Interventions (April 7, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/07/fact-sheet-more-details-on-the-biden-harris-administrations-investments-in-community-violence-interventions/.
    \52\ Federal Bureau of Investigation, FBI Releases 2020 Crime 
Statistics (September 27, 2021) https://www.fbi.gov/news/pressrel/press-releases/fbi-releases-2020-crime-statistics.
    \53\ Id.
    \54\ Id.
    \55\ The Educational Fund to Stop Gun Violence, Community Gun 
Violence, https://efsgv.org/learn/type-of-gun-violence/community-gun-violence/ (last visited November 9, 2021).
    \56\ Giffords Law Center, Healing Communities in Crisis: 
Lifesaving Solutions to the Urban Gun Violence Epidemic (March 
2016), https://giffords.org/wp-content/uploads/2019/01/Healing-Communities-in-Crisis.pdf.
---------------------------------------------------------------------------

    Many communities are using SLFRF funds to invest in holistic 
approaches in violence prevention that are rooted in targeted outreach 
and addressing root causes. For example, the City of St. Louis is 
planning to invest in expanding a ``community responder'' model 
designed to provide clinical help and to divert non-violent calls away 
from the police department. Additionally, the city will expand access 
to mental health services, allowing residents to seek support at city 
recreation centers, libraries, and other public spaces.\57\ Similarly, 
Los Angeles County will further invest in its ``Care First, Jails 
Last'' program which seeks to replace ``arrest and incarceration'' 
responses with health interventions.\58\
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    \57\ St. Louis, MO Recovery Plan, https://www.stlouis-mo.gov/government/recovery/covid-19/arpa/plan/.
    \58\ Los Angeles County, CA Recovery Plan, http://file.lacounty.gov/SDSInter/bos/supdocs/160391.pdf.
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    While the pandemic affected communities across the country, it 
disproportionately impacted some demographic groups and exacerbated 
health inequities along racial, ethnic, and socioeconomic lines.\59\ 
The CDC has found that racial and ethnic minorities are at increased 
risk for infection, hospitalization, and death from COVID-19, with 
Hispanic or Latino and Native American or Alaska Native patients at 
highest risk.\60\
---------------------------------------------------------------------------

    \59\ Office of the White House, National Strategy for the COVID-
19 Response and Pandemic Preparedness (Jan. 21, 2021), https://www.whitehouse.gov/wp-content/uploads/2021/01/National-Strategy-for-the-COVID-19-Response-and-Pandemic-Preparedness.pdf.
    \60\ In a study of 13 states from October to December 2020, the 
CDC found that Hispanic or Latino and Native American or Alaska 
Native individuals were 1.7 times more likely to visit an emergency 
room for COVID-19 than White individuals, and Black individuals were 
1.4 times more likely to do so than White individuals. See Sebastian 
D. Romano et al., Trends in Racial and Ethnic Disparities in COVID-
19 Hospitalizations, by Region--United States, March-December 2020, 
MMWR Morb Mortal Wkly Rep 2021, 70:560-565 (Apr. 16, 2021), https://www.cdc.gov/mmwr/volumes/70/wr/mm7015e2.htm?s_cid=mm7015e2_w.
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    Similarly, low-income and socially vulnerable communities have seen 
the most severe health impacts. For example, counties with high poverty 
rates also have the highest rates of infections and deaths, with 308 
deaths per 100,000 compared to the U.S. average of 238 deaths per 
100,000, as of December 2021.\61\ Counties with high social 
vulnerability, as measured by factors such as poverty and educational 
attainment, have also fared more poorly than the national average, with 
325 deaths per 100,000 as of December 2021.\62\ Over the course of the

[[Page 4352]]

pandemic, Native Americans have experienced more than one and a half 
times the rate of COVID-19 infections, more than triple the rate of 
hospitalizations, and more than double the death rate compared to White 
Americans.\63\ Low-income and minority communities also exhibit higher 
rates of pre-existing conditions that may contribute to an increased 
risk of COVID-19 mortality.\64\ In addition, individuals living in low-
income communities may have had more limited ability to socially 
distance or to self-isolate when ill, resulting in faster spread of the 
virus, and were over-represented among essential workers, who face 
greater risk of exposure.\65\
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    \61\ Centers for Disease Control and Prevention, COVID Data 
Tracker: Trends in COVID-19 Cases and Deaths in the United States, 
by County-level Population Factors, https://covid.cdc.gov/covid-data-tracker/#pop-factors_totaldeaths (last visited December 7, 
2021).
    \62\ The CDC's Social Vulnerability Index includes fifteen 
variables measuring social vulnerability, including unemployment, 
poverty, education levels, single-parent households, disability 
status, non-English speaking households, crowded housing, and 
transportation access.
    Centers for Disease Control and Prevention, COVID Data Tracker: 
Trends in COVID-19 Cases and Deaths in the United States, by Social 
Vulnerability Index, https://covid.cdc.gov/covid-data-tracker/#pop-factors_totaldeaths (last visited December 7, 2021).
    \63\ Centers for Disease Control and Prevention, Risk for COVID-
19 Infection, Hospitalization, and Death By Race/Ethnicity, https://www.cdc.gov/coronavirus/2019-ncov/covid-data/investigations-discovery/hospitalization-death-by-race-ethnicity.html (last visited 
December 7, 2021).
    \64\ See, e.g., Centers for Disease Control and Prevention, Risk 
of Severe Illness or Death from COVID-19 (Dec. 10, 2020), https://www.cdc.gov/coronavirus/2019-ncov/community/health-equity/racial-ethnic-disparities/disparities-illness.html (last visited December 
7, 2021).
    \65\ Milena Almagro et al., Racial Disparities in Frontline 
Workers and Housing Crowding During COVID-19: Evidence from 
Geolocation Data (Sept. 22, 2020), NYU Stern School of Business 
(forthcoming), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3695249; Grace McCormack et al., Economic 
Vulnerability of Households with Essential Workers, JAMA 324(4):388-
90 (2020), available at https://jamanetwork.com/journals/jama/fullarticle/2767630.
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    Social distancing measures in response to the pandemic may have 
also exacerbated pre-existing public health challenges. For example, 
for children living in homes with lead paint, spending substantially 
more time at home raises the risk of developing elevated blood lead 
levels, while screenings for elevated blood lead levels declined during 
the pandemic.\66\ The combination of these underlying social and health 
vulnerabilities may have contributed to more severe public health 
outcomes of the pandemic within these communities, resulting in an 
exacerbation of pre-existing disparities in health outcomes.\67\
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    \66\ See, e.g., Joseph G. Courtney et al., Decreases in Young 
Children Who Received Blood Lead Level Testing During COVID-19--34 
Jurisdictions, January-May 2020, Morb. Mort. Wkly. Rep. 70(5):155-61 
(Feb. 5, 2021), https://www.cdc.gov/mmwr/volumes/70/wr/mm7005a2.htm; 
Emily A. Benfer & Lindsay F. Wiley, Health Justice Strategies to 
Combat COVID-19: Protecting Vulnerable Communities During a 
Pandemic, Health Affairs Blog (Mar. 19, 2020), https://www.healthaffairs.org/do/10.1377/hblog20200319.757883/full/.
    \67\ See, e.g., Centers for Disease Control and Prevention, 
supra note 62; Benfer & Wiley, supra note 66; Nathaniel M. Lewis et 
al., Disparities in COVID-19 Incidence, Hospitalizations, and 
Testing, by Area-Level Deprivation--Utah, March 3-July 9, 2020, 
Morb. Mortal. Wkly. Rep. 69(38):1369-73 (Sept. 25, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6938a4.htm.
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Summary of the Interim Final Rule Approach to Public Health
    Summary: As discussed above, the interim final rule provided 
flexibility for recipients to pursue a wide range of eligible uses to 
``respond to'' the COVID-19 public health emergency. Uses of funds to 
``respond to'' the public health emergency address the SARS-CoV-2 virus 
itself, support efforts to prevent or decrease spread of the virus, and 
address other impacts of the pandemic on public health. The interim 
final rule implemented these provisions by identifying a non-exhaustive 
list of programs or services that may be funded as responding to COVID-
19 (``enumerated eligible uses''), along with considerations for 
evaluating other potential uses of funds not explicitly listed. 
Enumerated eligible uses are discussed below. For guidance on how to 
determine whether a particular use is allowable, beyond those 
enumerated, see section Standards: Identifying a Public Health Impact.
    Enumerated eligible uses under this section built and expanded upon 
permissible expenditures under the Coronavirus Relief Fund; for 
clarity, the interim final rule expressly listed as eligible uses the 
uses permissible under the Coronavirus Relief Fund, with minor 
exceptions.\68\ The interim final rule also recognized that the nature 
of the COVID-19 public health emergency, and responsive policy 
measures, programs, and services, had changed over time and is expected 
to continue evolving.
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    \68\ Generally, funding uses eligible under CRF as a response to 
the direct public health impacts of COVID-19 will continue to be 
eligible under the ARPA, including those not explicitly listed in 
the final rule, with the following two exceptions: (1) The standard 
for eligibility of public health and safety payrolls has been 
updated (see section Public Sector Capacity and Workforce in General 
Provisions: Other) and (2) expenses related to the issuance of tax-
anticipation notes are no longer an eligible funding use (see 
section Restrictions on Use: Debt Service).
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    The interim final rule categorized enumerated eligible uses to 
respond to the public health emergency into several categories: (1) 
COVID-19 mitigation and prevention, (2) medical expenses, (3) 
behavioral health care, (4) public health and safety staff, (5) 
expenses to improve the design and execution of health and public 
health programs, and (6) eligible uses to address disparities in public 
health outcomes. For each category in turn, this section describes 
public comments received and Treasury's responses, as well as comments 
received proposing additional enumerated eligible uses.
    Reorganizations and Cross-References: In some cases, enumerated 
eligible uses included in the interim final rule under responding to 
the public health emergency have been re-categorized in the 
organization of the final rule to enhance clarity. For discussion of 
eligible uses for public health and safety staff and to improve the 
design and execution of public health programs, please see section 
Public Sector Capacity and Workforce in General Provisions: Other. For 
discussion of eligible uses to address disparities in public health 
outcomes, please see section Assistance to Households in Negative 
Economic Impacts.
    Conversely, discussion of eligible assistance to small businesses 
and nonprofits to respond to public health impacts has been moved from 
Assistance to Small Businesses and Assistance to Nonprofits in Negative 
Economic Impacts to this section. This change is consistent with the 
interim final rule, which provides that appropriate responses to 
address the public health impacts of COVID-19 may be provided to any 
type of entity.
a. COVID-19 Mitigation and Prevention
    COVID-19 public health response and mitigation tactics. Recognizing 
the broad range of services and programming needed to contain COVID-19, 
the interim final rule provided an extensive list of enumerated 
eligible uses to prevent and mitigate COVID-19 and made clear that the 
public health response to the virus is expected to continue to evolve 
over time, necessitating different uses of funds.
    Enumerated eligible uses of funds in this category included: 
Vaccination programs; medical care; testing; contact tracing; support 
for isolation or quarantine; supports for vulnerable populations to 
access medical or public health services; public health surveillance 
(e.g., monitoring case trends, genomic sequencing for variants); 
enforcement of public health orders; public communication efforts; 
enhancement to health care capacity, including through alternative care 
facilities; purchases of personal protective equipment; support for 
prevention, mitigation, or other services in congregate living 
facilities (e.g., nursing homes, incarceration settings, homeless 
shelters, group living facilities) and other key settings like schools; 
ventilation improvements in congregate settings, health care settings, 
or other key locations; enhancement of

[[Page 4353]]

public health data systems; other public health responses; and capital 
investments in public facilities to meet pandemic operational needs, 
such as physical plant improvements to public hospitals and health 
clinics or adaptations to public buildings to implement COVID-19 
mitigation tactics. These enumerated uses are consistent with guidance 
from public health authorities, including the CDC.
    Public Comment: Many commenters were supportive of expansive 
enumerated eligible uses for mitigating and preventing COVID-19, noting 
the wide range of activities that governments may undertake and the 
continued changing landscape of pandemic response. Some commenters 
requested that Treasury engage in ongoing consideration of and 
consultation on evolving public health needs and resulting eligible 
expenses. Some commenters noted that their jurisdiction does not have 
an official public health program, for example smaller jurisdictions or 
those that do not have a health department, and requested clarification 
on whether their public health expenses would still be eligible in 
compliance with program rules.
    Treasury Response: In the final rule, Treasury is maintaining an 
expansive list of enumerated eligible uses to mitigate and prevent 
COVID-19, given the wide-ranging activities that governments may take 
to further these goals, including ``other public health responses.'' 
Note that the final rule discusses several of these enumerated uses in 
more detail below.
    Treasury is further clarifying that when providing COVID-19 
prevention and mitigation services, recipients can identify the 
impacted population as the general public. Treasury presumes that all 
enumerated eligible uses for programs and services, including COVID-19 
mitigation and prevention programs and services, are reasonably 
proportional responses to the harm identified unless a response is 
grossly disproportionate to the type or extent of harm experienced. 
Note that capital expenditures are not considered ``programs and 
services'' and are not presumed to be reasonably proportional responses 
to an identified harm except as provided in section Capital 
Expenditures in General Provisions: Other. In other words, recipients 
can provide any COVID-19 prevention or mitigation service to members of 
the general public without any further analysis of impacts of the 
pandemic on those individuals and whether the service is responsive.
    This approach gives recipient governments an extensive set of 
eligible uses that can adapt to local needs, as well as evolving 
response needs and developments in understanding of transmission of 
COVID-19. Treasury emphasizes how the enumerated eligible uses can 
adapt to changing circumstances. For example, when the interim final 
rule was released, national daily COVID-19 cases were at relatively low 
levels and declining; \69\ as the Delta variant spread and cases peaked 
in many areas of the country, particularly those with low vaccination 
rates, government response needs and tactics evolved, and the SLFRF 
funds provided the ability to quickly and nimbly adapt to new public 
health needs. Treasury also notes that funds may be used to support 
compliance with and implementation of COVID-19 safety requirements, 
including vaccination requirements, testing programs, or other required 
practices.
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    \69\ See Centers for Disease Control and Prevention, COVID Data 
Tracker, https://covid.cdc.gov/covid-data-tracker/#trends_dailycases 
(last visited December 7, 2021).
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    Recipient governments do not need to have an official health or 
public health program in order to utilize these eligible uses; any 
recipient can pursue these eligible uses, though Treasury recommends 
consulting with health and public health professionals to support 
effective implementation.
    The CDC has provided recommendations and guidelines to help 
mitigate and prevent COVID-19. The interim final rule and final rule 
help support recipients in stopping the spread of COVID-19 through 
these recommendations and guidelines.\70\ The final rule reflects 
changing circumstances of COVID-19 and provides a broad range of 
permissible uses for mitigating and preventing the spread of the 
disease, in a manner consistent with CDC guidelines and 
recommendations.
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    \70\ See Centers for Disease Control and Prevention, COVID-19, 
https://www.cdc.gov/coronavirus/2019-ncov/index.html (last visited 
November 8, 2021).
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    The purpose of the SLFRF funds is to mitigate the fiscal effects 
stemming from the COVID-19 public health emergency, including by 
supporting efforts to stop the spread of the virus. The interim final 
rule and final rule implement this objective by, in part, providing 
that recipients may use SLFRF funds for COVID-19 mitigation and 
prevention.\71\ A program or service that imposes conditions on 
participation in or acceptance of the service that would undermine 
efforts to stop the spread of COVID-19 or discourage compliance with 
recommendations and guidelines in CDC guidance for stopping the spread 
of COVID-19 is not a permissible use of funds. In other words, 
recipients may not use funds for a program that undermines practices 
included in the CDC's guidelines and recommendations for stopping the 
spread of COVID-19. This includes programs that impose a condition to 
discourage compliance with practices in line with CDC guidance (e.g., 
paying off fines to businesses incurred for violation of COVID-19 
vaccination or safety requirements), as well as programs that require 
households, businesses, nonprofits, or other entities not to use 
practices in line with CDC guidance as a condition of receiving funds 
(e.g., requiring that businesses abstain from requiring mask use or 
employee vaccination as a condition of receiving SLFRF funds).
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    \71\ See Sec.  35.6(b); Coronavirus State and Local Fiscal 
Recovery Funds, 86 FR at 26786.
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    Vaccination programs and vaccine incentives. At the time of the 
interim final rule release, many vaccination programs were using mass 
vaccination tactics to rapidly reach Americans en masse for first 
vaccine doses.\72\ Since that time, the FDA has authorized booster 
vaccine doses for certain groups and certain vaccines and has also 
authorized vaccines for youths \73\ \74\ The inclusion of ``vaccination 
programs'' as an eligible use allows for adaptation as the needs of 
programs change or new groups become eligible for different types of 
vaccinations.
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    \72\ Centers for Disease Control and Prevention, COVID Data 
Tracker: COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited October 
18, 2021).
    \73\ U.S. Food and Drug Administration, Coronavirus (COVID-19) 
Update: FDA Takes Additional Actions on the Use of a Booster Dose 
for COVID-19 Vaccines, https://www.fda.gov/news-events/press-announcements/fda-authorizes-pfizer-biontech-covid-19-vaccine-emergency-use-children-5-through-11-years-age (last visited November 
8, 2021).
    \74\ U.S. Food and Drug Administration, FDA Authorizes Pfizer-
BioNTech COVID-19 Vaccine for Emergency Use in Children 5 through 11 
Years of Age, https://www.fda.gov/news-events/press-announcements/fda-authorizes-pfizer-biontech-covid-19-vaccine-emergency-use-children-5-through-11-years-age (last visited November 8, 2021).
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    Public Comment: Since the release of the interim final rule, many 
recipient governments have also requested clarification on whether 
vaccine incentives are a permissible use of funds.
    Treasury Response: Treasury issued guidance clarifying that 
``[vaccine] programs that provide incentives reasonably expected to 
increase the number of people who choose to get vaccinated, or that 
motivate people to get vaccinated sooner than they otherwise would 
have, are an allowable

[[Page 4354]]

use of funds so long as such costs are reasonably proportional to the 
expected public health benefit.'' \75\ This use of funds remains 
permissible under the final rule.
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    \75\ Coronavirus State and Local Fiscal Recovery Funds, 
Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf. Note that programs 
may provide incentives to individuals who have already received a 
vaccination if the incentive is reasonably expected to increase the 
number of people who choose to get vaccinated or motivate people to 
get vaccinated sooner and the costs are reasonably proportional to 
the expected public health benefit.
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Capital Expenditures
    Public Comment: Many commenters requested clarification around the 
types and scope of permissible capital investments in public facilities 
to meet pandemic operational needs; ventilation improvements in 
congregate settings, health care settings, or other key locations; and 
whether support for prevention and mitigation in congregate facilities 
could include facilities renovations, improvements, or construction of 
new facilities, or if the facilities must solely be used for COVID-19 
response.
    Treasury Response: For clarity, Treasury has addressed the 
eligibility standard for capital expenditures, or investments in 
property, facilities, or equipment, in one section of this 
Supplementary Information; see section Capital Expenditures in General 
Provisions: Other. In recognition of the importance of capital 
expenditures in the COVID-19 public health response, Treasury 
enumerates that the following projects are examples of eligible capital 
expenditures, as long as they meet the standards for capital 
expenditures in section Capital Expenditures in General Provisions: 
Other:
    <bullet> Improvements or construction of COVID-19 testing sites and 
laboratories, and acquisition of related equipment;
    <bullet> Improvements or construction of COVID-19 vaccination 
sites;
    <bullet> Improvements or construction of medical facilities 
generally dedicated to COVID-19 treatment and mitigation (e.g., 
emergency rooms, intensive care units, telemedicine capabilities for 
COVID-19 related treatment);
    <bullet> Expenses of establishing temporary medical facilities and 
other measures to increase COVID-19 treatment capacity, including 
related construction costs;
    <bullet> Acquisition of equipment for COVID-19 prevention and 
treatment, including ventilators, ambulances, and other medical or 
emergency services equipment;
    <bullet> Improvements to or construction of emergency operations 
centers and acquisition of emergency response equipment (e.g., 
emergency response radio systems);
    <bullet> Installation and improvements of ventilation systems;
    <bullet> Costs of establishing public health data systems, 
including technology infrastructure;
    <bullet> Adaptations to congregate living facilities, including 
skilled nursing facilities, other long-term care facilities, 
incarceration settings, homeless shelters, residential foster care 
facilities, residential behavioral health treatment, and other group 
living facilities, as well as public facilities and schools (excluding 
construction of new facilities for the purpose of mitigating spread of 
COVID-19 in the facility); and
    <bullet> Mitigation measures in small businesses, nonprofits, and 
impacted industries (e.g., developing outdoor spaces).
    Other clarifications on COVID-19 mitigation: Medical care, supports 
for vulnerable populations, data systems, carceral settings. Based on 
public comments and questions received from recipients following the 
interim final rule, Treasury is making several further clarifications 
on enumerated eligible uses in this category.
    Public Comment: Several commenters requested clarification on 
eligible uses of funds for medical care; Treasury addresses those 
comments in the section Medical Expenses below.
    Public Comment: Recipients posed questions on the type and scope of 
activities eligible as ``supports for vulnerable populations to access 
medical or public health services.''
    Treasury Response: Enumerated eligible uses should be considered in 
the context of the eligible use category or section where they appear; 
in this case, ``supports for vulnerable populations to access medical 
or public health services'' appears in the section COVID-19 Mitigation 
and Prevention. As such, these eligible uses should help vulnerable or 
high-risk populations access services that mitigate COVID-19, for 
example, transportation assistance to reach vaccination sites, mobile 
vaccination or testing programs, or on-site vaccination or testing 
services for homebound individuals, those in group homes, or similar 
settings.
    Public Comment: Some commenters asked whether ``enhancement of 
public health data systems'' could include investments in software, 
databases, and other information technology resources that support 
responses to the COVID-19 public health emergency but also provide 
benefits for other use cases and long-term capacity of public health 
departments and systems.
    Treasury Response: These are permissible uses of funds under the 
interim final rule and remain eligible under the final rule.
Assistance to Businesses and Nonprofits To Implement COVID-19 
Mitigation Strategies
    Background: As detailed above, Treasury received many public 
comments describing uncertainty about which eligible use category 
should be used to assess different potential uses of funds. As a 
result, Treasury has re-categorized some uses of funds in the final 
rule to provide greater clarity, consistent with the principle that 
uses of funds should be assessed based on their intended beneficiary. 
For example, COVID-19 mitigation and prevention serves the general 
public or specific populations within the public. However, in the 
interim final rule, assistance to small businesses, nonprofits, and 
impacted industries to implement COVID-19 mitigation and prevention 
strategies was categorized in the respective sections within Negative 
Economic Impacts. The final rule consolidates all COVID-19 mitigation 
and prevention within Public Health.
    Public Comment: Treasury has received multiple comments and 
questions about which eligible use permits the recipient to provide 
assistance to businesses and nonprofits to address the public health 
impacts of COVID-19.
    Treasury Response: In the final rule, these services have been re-
categorized under COVID-19 mitigation and prevention to reflect the 
fact that this assistance responds to public health impacts of the 
pandemic rather than the negative economic impacts to a small business, 
nonprofit, or impacted industry. When providing COVID-19 mitigation and 
prevention services, recipients can identify the impacted entity as 
small businesses, nonprofits, or businesses in impacted industries in 
general. As with all enumerated eligible uses, recipients may presume 
that all COVID-19 mitigation and prevention programs and services are 
reasonably proportional responses to the harm identified unless a 
response is grossly disproportionate to the type or extent of harm 
experienced. Note that capital expenditures are not considered 
``programs and services'' and are not presumed to be reasonably 
proportional responses to an identified harm except as provided in 
section Capital Expenditures in General Provisions: Other. In other 
words, recipients can provide any COVID-19 prevention or mitigation 
service to small businesses, nonprofits, and businesses in impacted

[[Page 4355]]

industries without any further analysis of impacts of the pandemic on 
those entities and whether the service is responsive.
    In some cases, this means that an entity not otherwise eligible to 
receive assistance to respond to negative economic impacts of the 
pandemic, for example an entity that did not experience a negative 
economic impact, may still be eligible to receive assistance under this 
category for COVID-19 mitigation and prevention services.
    Uses of funds can include loans, grants, or in-kind assistance to 
small businesses, nonprofits, or other entities to implement COVID-19 
prevention or mitigation tactics, such as vaccination; testing; contact 
tracing programs; physical plant changes to enable greater use of 
outdoor spaces or ventilation improvements; enhanced cleaning efforts; 
and barriers or partitions. For example, this would include assistance 
to a restaurant to establish an outdoor patio, given evidence showing 
much lower risk of COVID-19 transmission outdoors.\76\ Uses of funds 
can also include aid to travel, tourism, hospitality, and other 
impacted industries to implement COVID-19 mitigation and prevention 
measures to enable safe reopening, for example, vaccination or testing 
programs, improvements to ventilation, physical barriers or partitions, 
signage to facilitate social distancing, provision of masks or personal 
protective equipment, or consultation with infection prevention 
professionals to develop safe reopening plans.
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    \76\ See Centers for Disease Control and Prevention, Participate 
in Outdoor and Indoor Activities, https://www.cdc.gov/coronavirus/2019-ncov/daily-life-coping/outdoor-activities.html (last visited 
November 8, 2021).
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    Recipients providing assistance to small businesses, nonprofits, or 
impacted industries that includes capital expenditures (i.e., 
expenditures on property, facilities, or equipment) should also review 
the section Capital Expenditures in General Provisions: Other, which 
describes eligibility standards for these expenditures. Recipients 
providing assistances in the form of loans should review the section 
Treatment of Loans Made with SLFRF Funds in General Provisions: Other.
    Recipients should also be aware of the difference between 
beneficiaries of assistance and subrecipients when working with small 
businesses, nonprofits, or impacted industries. As noted above, 
Treasury presumes that the general public, as well as small businesses, 
nonprofits, and impacted industries in general, has been impacted by 
the COVID-19 disease itself and is eligible for services that mitigate 
or prevent COVID-19 spread. As such, a small business, nonprofit, or 
impacted industry receiving assistance to implement COVID-19 mitigation 
measures is a beneficiary of assistance (e.g., granting funds to a 
small business to develop an outdoor patio to reduce transmission). In 
contrast, if a recipient contracts with, or grants funds to, a small 
business, nonprofit, or impacted industry to carry out an eligible use 
for COVID-19 mitigation on behalf of the recipient, the entity is a 
subrecipient (e.g., contracting with a small business to operate COVID-
19 vaccination sites). For further information on distinguishing 
between beneficiaries and subrecipients, as well as the impacts of the 
distinction on reporting and other requirements, see section 
Distinguishing Subrecipients versus Beneficiaries.
b. Medical Expenses
    Background: The interim final rule also included as an enumerated 
eligible use medical expenses, including medical care and services to 
address the near-term and potential longer-term impacts of the disease 
on individuals infected.
    Public Comment: Some commenters sought clarification on the types 
of medical expenses eligible and for whom, including whether funds 
could be used under this category for expanding health insurance 
coverage (e.g., subsidies for premiums, expanding a group health plan), 
improvements to healthcare facilities or establishment of new medical 
facilities, direct costs of medical services, and costs to a self-
funded health insurance plan (e.g., a county government health plan) 
for COVID-19 medical care.
    Treasury Response: In the final rule, Treasury is maintaining this 
enumerated eligible use category and clarifying that it covers costs 
related to medical care provided directly to an individual due to 
COVID-19 infection (e.g., treatment) or a potential infection (e.g., 
testing). This can include medical costs to uninsured individuals; 
deductibles, co-pays, or other costs not covered by insurance; costs 
for uncompensated care at a health provider; emergency medical response 
costs; and, for recipients with a self-funded health insurance plan, 
excess health insurance costs due to COVID-19 medical care. These are 
medical expenses due to COVID-19 and distinguish this category of 
eligible uses from other related eligible uses, like COVID-19 
mitigation and prevention and health insurance expenses to households, 
to provide greater clarity for recipients in determining which category 
of eligible uses they should review to assess a potential use of funds. 
For discussion of eligibility for programs to expand health insurance 
coverage, see section Assistance to Households.
c. Behavioral Health Care
    Background: Recognizing that the public health emergency, necessary 
mitigation measures like social distancing, and the economic downturn 
have exacerbated mental health and substance use challenges for many 
Americans, the interim final rule included an enumerated eligible use 
for mental health treatment, substance use treatment, and other 
behavioral health services, including a non-exhaustive list of specific 
services that would be eligible under this category.
    Public Comment: Many commenters expressed support for the interim 
final rule's recognition of behavioral health impacts of the pandemic 
and eligible uses under this category. Several commenters requested 
clarification on the types of eligible services under this category, 
specifically whether both acute and chronic care are included as well 
as services that often do not directly accept insurance payments, like 
peer support groups. Some commenters highlighted the importance of 
cultural competence in providing effective behavioral health services. 
Some commenters suggested that funding should be available broadly and 
quickly for this purpose, recommending that funding available for 
behavioral health not be tied to the amount of revenue loss experienced 
by the recipient.
    Treasury Response: In the final rule, Treasury is maintaining this 
enumerated eligible use category and clarifying that it covers an 
expansive array of services for prevention, treatment, recovery, and 
harm reduction for mental health, substance use, and other behavioral 
health challenges caused or exacerbated by the public health emergency. 
The specific services listed in the interim final rule also remain 
eligible.\77\
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    \77\ Hotlines or warmlines, crisis intervention, overdose 
prevention, infectious disease prevention, and services or outreach 
to promote access to physical or behavioral health primary care and 
preventative medicine.
---------------------------------------------------------------------------

    Treasury is further clarifying that when providing behavioral 
health services, recipients can identify the impacted population as the 
general public and, as with all enumerated eligible uses, presume that 
all programs and services are reasonably proportional responses to the 
harm identified unless a response is grossly disproportionate to the 
type or extent of harm experienced. In contrast, capital expenditures 
are not

[[Page 4356]]

considered ``programs and services'' and are not presumed to be 
reasonably proportional responses to an identified harm except as 
provided in section Capital Expenditures in General Provisions: Other.
    In other words, recipients can provide behavioral health services 
to members of the general public without any further analysis of 
impacts of the pandemic on those individuals and whether the service is 
responsive. Recipients may also use this eligible use category to 
respond to increased rates of behavioral health challenges at a 
population level or, at an individual level, new behavioral health 
challenges or exacerbation of pre-existing challenges, including new 
barriers to accessing treatment.
    Services that respond to these impacts of the public health 
emergency may include services across the continuum of care, including 
both acute and chronic care, such as prevention, outpatient treatment, 
inpatient treatment, crisis care, diversion programs (e.g., from 
emergency departments or criminal justice system involvement), outreach 
to individuals not yet engaged in treatment, harm reduction, and 
supports for long-term recovery (e.g., peer support or recovery 
coaching, housing, transportation, employment services).
    Recipients may also provide services for special populations, for 
example, enhanced services in schools to address increased rates of 
behavioral health challenges for youths, mental health first responder 
or law enforcement-mental health co-responder programs to divert 
individuals experiencing mental illness from the criminal justice 
system, or services for pregnant women with substance use disorders or 
infants born with neonatal abstinence syndrome. Finally, recipients may 
use funds for programs or services to support equitable access to 
services and reduce racial, ethnic, or socioeconomic disparities in 
access to high-quality treatment.
    Eligible uses of funds may include services typically billable to 
insurance \78\ or services not typically billable to insurance, such as 
peer support groups, costs for residence in supportive housing or 
recovery housing, and the 988 National Suicide Prevention Lifeline or 
other hotline services. Recipients may also use funds in conjunction 
with other federal grants or programs (see section Program 
Administration Provisions), though eligible services under SLFRF are 
not limited to those eligible under existing federal programs.
---------------------------------------------------------------------------

    \78\ However, SLFRF funds may not be used to reimburse a service 
that was also billed to insurance.
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    Given the public health emergency's exacerbation of the ongoing 
opioid and overdose crisis, Treasury highlights several ways that funds 
may be used to respond to opioid use disorder and prevent overdose 
mortality.\79\ Specifically, eligible uses of funds include programs to 
expand access to evidence-based treatment like medications to treat 
opioid use disorder (e.g., direct costs or incentives for emergency 
departments, prisons, jails, and outpatient providers to offer 
medications and low-barrier treatment), naloxone distribution, syringe 
service programs, outreach to individuals in active use, post-overdose 
follow up programs, programs for diversion from the criminal justice 
system, and contingency management interventions.
---------------------------------------------------------------------------

    \79\ In line with the Department of Health and Human Services, 
Overdose Prevention Strategy, https://www.hhs.gov/overdose-prevention/, and the Office of National Drug Control Policy, 
Administration's Statement on Drug Policy Priorities for Year One 
(April 1, 2021), https://www.whitehouse.gov/wp-content/uploads/2021/03/BidenHarris-Statement-of-Drug-Policy-Priorities-April-1.pdf.
---------------------------------------------------------------------------

    Finally, for clarity, Treasury has addressed the eligibility 
standard for capital expenditures, or investments in property, 
facilities, or equipment, in one section of this Supplementary 
Information; see section Capital Expenditures in General Provisions: 
Other. Examples of capital expenditures related to behavioral health 
that Treasury recognizes as eligible include behavioral health 
facilities and equipment (e.g., inpatient or outpatient mental health 
or substance use treatment facilities, crisis centers, diversion 
centers), as long as they adhere to the standards detailed in the 
Capital Expenditures section.
d. Preventing and Responding to Violence
    Background: The interim final rule highlighted that some types of 
violence had increased during the pandemic and that the ability of 
victims to access services had decreased, noting as an example the 
challenges that individuals affected by domestic violence face in 
accessing services. Accordingly, the interim final rule enumerated as 
an eligible use, in disproportionately impacted communities, evidence-
based community violence intervention programs. Following the release 
of the interim final rule, Treasury received several recipient 
questions regarding whether and how funds may be used to respond to an 
increase in crime, violence, or gun violence in some communities during 
the pandemic. Treasury released further guidance identifying how 
enumerated eligible uses and eligible use categories under the interim 
final rule could support violence reduction efforts, including rehiring 
public sector staff, behavioral health services, and services to 
address negative economic impacts of the pandemic that may aid victims 
of crime. The guidance also identified an expanded set of enumerated 
eligible uses to address increased gun violence.
    Public Comment: Several commenters expressed support for this use 
of funds.
    Treasury Response: In the final rule, Treasury is maintaining 
enumerated eligible uses in this area and clarifying how to apply 
eligibility standards. Throughout the final rule, enumerated eligible 
uses should respond to an identified impact of the COVID-19 public 
health emergency in a reasonably proportional manner to the extent and 
type of harm experienced. Many of the enumerated eligible uses--like 
behavioral health services, services to improve employment 
opportunities, and services to address educational disparities in 
disproportionately impacted communities--that respond to the public 
health and negative economic impacts of the pandemic may also have 
benefits for reducing crime or aiding victims of crime. For example, 
the pandemic exacerbated the impact of domestic violence, sexual 
assault, and human trafficking; enumerated eligible uses like emergency 
housing assistance, cash assistance, or assistance with food, 
childcare, and other needs could be used to support survivors of 
domestic violence, sexual assault, or human trafficking who experienced 
public health or economic impacts due to the pandemic.
    Public Comment: Several commenters expressed support for community 
violence intervention programs or argued that traditional public safety 
approaches had negatively impacted the social determinants of health in 
their communities. Several commenters recommended inclusion of 
approaches like mental health or substance use diversion programs.
    Treasury Response: Treasury recognizes the importance of 
comprehensive approaches to challenges like violence. The final rule 
includes an enumerated eligible use for community violence intervention 
programs in all communities, not just the disproportionately impacted 
communities eligible under the interim final rule. Given the increased 
rate of violence during the pandemic, Treasury has determined that this 
enumerated

[[Page 4357]]

eligible use is responsive to the impacts of the pandemic in all 
communities. The final rule incorporates guidance issued after the 
interim final rule on specifically types of services eligible, 
including:
    <bullet> Evidence-based practices like focused deterrence, street 
outreach, violence interrupters, and hospital-based violence 
intervention models, complete with wraparound services such as 
behavioral therapy, trauma recovery, job training, education, housing 
and relocation services, and financial assistance; and
    <bullet> Capacity-building efforts at community violence 
intervention programs like funding more intervention workers, 
increasing their pay, providing training and professional development 
for intervention workers, and hiring and training workers to administer 
the programs.
    Public Comment: Some commenters sought further clarification on 
whether some of the enumerated eligible uses are considered responsive 
to all crime, violent crime, or gun violence.
    Treasury Response: Enumerated eligible uses that respond to an 
increase in gun violence may be pursued in communities experiencing an 
increase in gun violence associated with the pandemic, specifically: 
(1) Hiring law enforcement officials--even above pre-pandemic levels--
or paying overtime where the funds are directly focused on advancing 
community policing strategies for gun violence, (2) additional 
enforcement efforts to reduce gun violence exacerbated by the pandemic, 
including prosecuting gun traffickers, dealers, and other parties 
contributing to the supply of crime guns, as well as collaborative 
federal, state, and local efforts to identify and address gun 
trafficking channels, and (3) investing in technology and equipment to 
allow law enforcement to more efficiently and effectively respond to 
the rise in gun violence resulting from the pandemic, for example 
technology to assist in the identification of guns whose serial numbers 
have been damaged.
3. Negative Economic Impacts
a. Assistance to Households
Background
    While the U.S. economy is now on the path to a strong recovery, the 
public health emergency, including the necessary measures taken to 
protect public health, resulted in significant economic and financial 
hardship for many Americans. As businesses closed, consumers stayed 
home, schools shifted to remote education, and travel declined 
precipitously, over 22 million jobs were lost in March and April 
2020.\80\ One year later, in April 2021, the economy still remained 
over 8 million jobs below its pre-pandemic peak,\81\ and the 
unemployment rate hovered around 6 percent.\82\
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    \80\ U.S. Bureau of Labor Statistics, All Employees, Total 
Nonfarm [PAYEMS], retrieved from FRED, Federal Reserve Bank of St. 
Louis; https://fred.stlouisfed.org/series/PAYEMS (last visited 
December 7, 2021).
    \81\ Id.
    \82\ U.S. Bureau of Labor Statistics, Unemployment Rate 
[UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis; 
https://fred.stlouisfed.org/series/UNRATE (last visited December 7, 
2021).
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    In the months since Treasury issued the interim final rule in May 
2021, the economy has made large strides in its recovery. The economy 
gained over 4 million jobs in the seven months from May to November 
2021; \83\ the unemployment rate fell more than 1.5 percentage points 
to 4.2 percent, which is the lowest rate since February 2020; \84\ and 
the size of the nation's economy surpassed the pre-pandemic peak in the 
second quarter of 2021.\85\
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    \83\ U.S. Bureau of Labor Statistics, supra note 80.
    \84\ U.S. Bureau of Labor Statistics, supra note 82.
    \85\ U.S. Bureau of Economic Analysis, Real Gross Domestic 
Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St. 
Louis, https://fred.stlouisfed.org/series/GDPC1 (last visited 
December 7, 2021).
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    While the economy has made immense progress in its recovery since 
May 2021, the economy has also faced setbacks that illustrate the 
continued risks to the recovery. As the Delta variant spread across the 
country this summer and fall, the United States faced another severe 
wave of cases, deaths, and strain on the healthcare system, which 
contributed to a slowdown in the pace of recovery in the third 
quarter.\86\ Supply chain disruptions have also demonstrated the 
difficulties of restarting a global economy.\87\ Moreover, although 
many Americans have returned to work as of November 2021, the economy 
remains 3.9 million jobs below its pre-pandemic peak,\88\ and 2.4 
million workers have dropped out of the labor market altogether 
relative to February 2020.\89\ Thus, despite much progress, there is a 
continued need to respond to the pandemic's economic effects to ensure 
a full, broad-based, and equitable recovery.
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    \86\ U.S. Department of the Treasury, Economy Statement by 
Catherine Wolfram, Acting Assistant Secretary for Economy Policy, 
for the Treasury Borrowing Advisory Committee (November 1, 2021), 
available at https://home.treasury.gov/news/press-releases/jy0453.
    \87\ Yuka Hayashi, IMF Cuts Global Growth Forecast Amid Supply-
Chain Disruptions, Pandemic Pressures, Wall Street Journal (October 
12, 2021), available at https://www.wsj.com/articles/imf-cuts-global-growth-forecast-amid-supply-chain-disruptions-warns-of-inflation-risks-11634043601.
    \88\ U.S. Bureau of Labor Statistics, supra note 80.
    \89\ U.S. Bureau of Labor Statistics, Civilian Labor Force Level 
[CLF16OV], retrieved from FRED, Federal Reserve Bank of St. Louis, 
https://fred.stlouisfed.org/series/CLF16OV (last visited December 7, 
2021).
---------------------------------------------------------------------------

    Indeed, the pandemic's economic impacts continue to affect some 
demographic groups more than others. Rates of unemployment remain 
particularly severe among workers of color and workers with lower 
levels of educational attainment; for example, the overall unemployment 
rate in the United States was 4.2 percent in November 2021, but certain 
groups saw much higher rates: 6.7 percent for Black workers, 5.2 
percent for Hispanic or Latino workers, and 5.7 percent for workers 
without a high school diploma.\90\ Job losses have also been 
particularly steep among low-wage workers, with these workers remaining 
furthest from recovery as of the end of 2020.\91\ A severe recession, 
and its concentrated impact among low-income workers, has amplified 
food and housing insecurity, with an estimated nearly 20 million adults 
living in households where there is sometimes or often not enough food 
to eat and an estimated 12 million adults living in households that 
were not current on rent.\92\
---------------------------------------------------------------------------

    \90\ U.S. Bureau of Labor Statistics, Labor Force Statistics 
from the Current Population Survey: Employment status of the 
civilian population by sex and age (December 6, 2021), https://www.bls.gov/news.release/empsit.t01.htm (last visited December 7, 
2021); U.S. Bureau of Labor Statistics, Labor Force Statistics from 
the Current Population Survey: Employment status of the civilian 
noninstitutional population by race, Hispanic or Latino ethnicity, 
sex, and age (December 6, 2021), https://www.bls.gov/web/empsit/cpseea04.htm (last visited December 7, 2021); U.S. Bureau of Labor 
Statistics, Labor Force Statistics from the Current Population 
Survey: Employment status of the civilian noninstitutional 
population 25 years and over by educational attainment (December 6, 
2021), https://www.bls.gov/web/empsit/cpseea05.htm (last visited 
December 7, 2021).
    \91\ Elise Gould & Jori Kandra, Wages grew in 2020 because the 
bottom fell out of the low-wage labor market, Economic Policy 
Institute (Feb. 24, 2021), https://files.epi.org/pdf/219418.pdf. See 
also, Michael Dalton et al., The K-Shaped Recovery: Examining the 
Diverging Fortunes of Workers in the Recovery from the COVID-19 
Pandemic using Business and Household Survey Microdata, U.S. Bureau 
of Labor Statistics Working Paper Series (July 2021), https://www.bls.gov/osmr/research-papers/2021/pdf/ec210020.pdf.
    \92\ Center on Budget and Policy Priorities, Tracking the COVID-
19 Recession's Effects on Food, Housing, and Employment Hardships, 
https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and (last visited December 
17, 2021).
---------------------------------------------------------------------------

    While economic effects have been seen across many communities, 
there are additional disparities by race and income. For example, 
approximately

[[Page 4358]]

half of low-income, Black, and Hispanic parents reported difficulty 
covering costs related to food, housing, utility, or medical care.\93\ 
Over the course of the pandemic, inequities also manifested along 
gender lines, as schools closed to in-person activities, leaving many 
working families without childcare during the day.\94\ Women of color 
have been hit especially hard: The labor force participation rate for 
Black women has fallen by 3.6 percentage points \95\ during the 
pandemic as compared to 1.3 percentage points for Black men \96\ and 
1.7 percentage points for White women.\97\
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    \93\ Michael Karpman, Dulce Gonzalez, Genevieve M. Kenney, 
Parents Are Struggling to Provide for Their Families during the 
Pandemic, Urban Institute (May 2020), https://www.urban.org/research/publication/parents-are-struggling-provide-their-families-during-pandemic?utm_source=urban_researcher&utm_medium=email&utm_campaign=covid_parents&utm_term=lhp.
    \94\ Women have carried a larger share of childcare 
responsibilities than men during the COVID-19 crisis. See, e.g., 
Gema Zamarro & Mar[iacute]a J. Prados, Gender differences in 
couples' division of childcare, work and mental health during COVID-
19, Rev. Econ. Household 19:11-40 (2021), available at https://link.springer.com/article/10.1007/s11150-020-09534-7; Titan Alon et 
al., The Impact of COVID-19 on Gender Equality, National Bureau of 
Economic Research Working Paper 26947 (April 2020), available at 
https://www.nber.org/papers/w26947.
    \95\ U.S. Bureau of Labor Statistics, Labor Force Participation 
Rate--20 Yrs. & Over, Black or African American Women [LNS11300032], 
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300032 (last visited December 7, 
2021).
    \96\ U.S. Bureau of Labor Statistics, Labor Force Participation 
Rate--20 Yrs. & Over, Black or African American Men [LNS11300031], 
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300031 (last visited December 7, 
2021).
    \97\ U.S. Bureau of Labor Statistics, Labor Force Participation 
Rate--20 Yrs. & Over, White Women [LNS11300029], retrieved from 
FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300029 (last visited December 7, 
2021).
---------------------------------------------------------------------------

    As the economy recovers, the effects of the pandemic-related 
recession may continue to impact households, including a risk of 
longer-term effects on earnings and economic potential. For example, 
unemployed workers, especially those who have experienced longer 
periods of unemployment, earn lower wages over the long term once 
rehired.\98\ In addition to the labor market consequences for 
unemployed workers, recessions can also cause longer-term economic 
challenges through, among other factors, damaged consumer credit scores 
\99\ and reduced familial and childhood wellbeing.\100\ These potential 
long-term economic consequences underscore the continued need for 
robust policy support.
---------------------------------------------------------------------------

    \98\ See, e.g., Michael Greenstone & Adam Looney, Unemployment 
and Earnings Losses: A Look at Long-Term Impacts of the Great 
Recession on American Workers, Brookings Institution (Nov. 4, 2011), 
https://www.brookings.edu/blog/jobs/2011/11/04/unemployment-and-earnings-losses-a-look-at-long-term-impacts-of-the-great-recession-on-american-workers/.
    \99\ Chi Chi Wu, Solving the Credit Conundrum: Helping 
Consumers' Credit Records Impaired by the Foreclosure Crisis and 
Great Recession, National Consumer Law Center (Dec. 2013), https://www.nclc.org/images/pdf/credit_reports/report-credit-conundrum-2013.pdf.
    \100\ Irwin Garfinkel, Sara McLanahan, Christopher Wimer, eds., 
Children of the Great Recession, Russell Sage Foundation (Aug. 
2016), available at https://www.russellsage.org/publications/children-great-recession.
---------------------------------------------------------------------------

    Low- and moderate-income households, those with income levels at or 
below 300 percent of the federal poverty level (FPL), face particular 
hardships and challenges. These households report much higher rates of 
food insecurity and housing hardships than households with higher 
incomes. For example, households with incomes at or below 300 percent 
FPL are several times more likely to have reported struggling with food 
insecurity compared to households with income above 300 percent 
FPL.\101\ Similarly, low- and moderate-income households reported being 
housing insecure \102\ at rates more than twice as high as higher-
income households, and low- and moderate-income households reported 
housing quality hardship \103\ at rates statistically significantly 
greater than the rate for higher-income households.\104\ The economic 
crisis caused by the pandemic worsened economic outcomes for workers in 
many low- and moderate-income households. Industries that employed low-
wage workers experienced a disproportionate level of job loss. For 
example, from February 2020 to February 2021, the hospitality and 
leisure industry lost nearly 3.5 million jobs.\105\ While the entire 
industry was impacted, 72 percent of the job losses occurred in the 
lowest wage service occupations compared to only a 6 percent rate of 
job loss in the highest wage management and finance jobs.\106\ Similar 
trends exist in other heavily impacted industries. In public education, 
the lowest wage occupations, service and transportation jobs, saw a job 
loss rate of 20 and 26 percent, respectively.\107\ During that same 
time period, the highest wage occupations in public education, 
management, actually saw jobs increase by 7 percent.\108\
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    \101\ Kyle J. Casewell and Stephen Zuckerman, Food Insecurity, 
Housing Hardship, and Medical Care Utilization, Urban Institute 
(June 2018), available at https://www.urban.org/sites/default/files/publication/98701/2001896_foodinsecurity_housinghardship_medicalcareutilization_finalized.pdf.
    \102\ Housing insecurity is defined as not paying the full 
amount of rent or mortgage and/or utility bills (gas, oil, or 
electricity) sometime in the previous 12 months.
    \103\ Housing quality hardship is defined as an affirmative 
response to one or more questions related to problems with a 
respondent's physical dwelling: Pests and/or insects; leaking roof 
or ceiling; windows that are broken or cannot shut; exposed 
electrical wires; broken plumbing (toilet, hot water, other); holes 
in walls, ceiling, or floor; no appliances (refrigerator or stove); 
and no phone (of any kind).
    \104\ Id.
    \105\ Elise Gould and Melat Kassa. Low-wage, low-hours workers 
were hit hardest in the COVID-19 recession: The State of Working 
America 2020 employment report, Economic Policy Institute (May 
2021), available at https://www.epi.org/publication/swa-2020-employment-report/.
    \106\ Id.
    \107\ Id.
    \108\ Id.
---------------------------------------------------------------------------

    While many households suffered negative economic outcomes as a 
result of the COVID-19 pandemic and economic recession, households with 
low incomes were impacted in disproportionate and exceptional ways. 
From January 2020 to March 2021, low-wage workers experienced job loss 
at a rate five times higher than middle-wage workers, and high-wage 
workers actually experienced an increase in job opportunities.\109\ 
Because workers in low-income households were more likely to lose their 
job or experience reductions in pay, those same households were also 
more likely to experience economic hardships like trouble paying 
utility bills, affording rent or mortgage payments, purchasing food, 
and paying for medical expenses.\110\ The disproportionate negative 
impacts the pandemic has had on low-income families extend beyond 
financial insecurity. For example, low-income families have reported 
higher levels of social isolation, stress, and other negative mental 
health outcomes during the pandemic. While over half of all U.S. adults 
report that their mental health was negatively affected by the 
pandemic, adults with low incomes reported major negative mental health 
impacts at a rate nearly twice that of adults with high incomes.\111\
---------------------------------------------------------------------------

    \109\ R. Chetty, J. Friedman, N. Hendren, M. Stepner, & Team, T. 
O. I., The Economic Impacts of COVID-19: Evidence from a New Public 
Database Built Using Private Sector Data (No. w27431; p. w27431) 
(2020), National Bureau of Economic Research. https://doi.org/10.3386/w27431.
    \110\ M. Despard, Michal Grinstein-Weiss, Yung Chun, and Stephen 
Roll, COVID-19 job and income loss leading to more hunger and 
financial hardship, Brookings Institute (July 13, 2020), https://www.brookings.edu/blog/upfront/2020/07/13/covid-19-job-and-income-loss-leading-to-more-hunger-and-financial-hardship/.
    \111\ N. Panchal, R. Kamal, C. Mu[ntilde]ana, & P. Chidambaram, 
The Implications of COVID-19 for Mental Health and Substance Use, 
Kaiser Family Foundation (February 10, 2021), https://www.kff.org/coronavirus-covid-19/issue-brief/the-implications-of-covid-19-for-mental-health-and-substance-use/.

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[[Page 4359]]

Summary of Interim Final Rule and Final Rule Structure
    Summary: The interim final rule provided a non-exhaustive list of 
enumerated eligible uses to respond to the negative economic impacts of 
the pandemic through assistance to households, as well as a standard 
for assessing whether uses of funds beyond those enumerated are 
eligible.
    The interim final rule described enumerated eligible uses for 
assistance to households in several categories: (1) Assistance to 
unemployed workers, (2) state Unemployment Insurance Trust Funds, (3) 
assistance to households, and (4) expenses to improve the efficacy of 
economic relief. Note that the interim final rule posed several 
questions to the public on enumerated eligible uses for assistance to 
households; comments on these questions are addressed in the relevant 
subject matter section below.
    In addition, in recognition that pre-existing health, economic, and 
social disparities contributed to disproportionate pandemic impacts in 
certain communities, the interim final rule also provided a broader 
list of enumerated eligible uses to respond to the pandemic in 
disproportionately impacted communities, specifically: (1) Building 
stronger communities through investments in housing and neighborhoods, 
(2) addressing educational disparities, and (3) promoting healthy 
childhood environments. In the interim final rule, under the Public 
Health section, recipients could also provide services to address 
health disparities and increase access to health and social services; 
these eligible uses have been re-organized into the Assistance to 
Households section to consolidate responses in disproportionately 
impacted communities and enhance clarity.
    This section addresses enumerated eligible uses in the final rule 
to respond to negative economic impacts to households. As a reminder, 
recipients may presume that a household or population that experienced 
unemployment, experienced increased food or housing insecurity, or is 
low or moderate income experienced negative economic impacts resulting 
from the pandemic, and recipients may provide services to them that 
respond to these impacts, including these enumerated eligible uses.
    For guidance on how to determine whether a particular use, beyond 
those enumerated, is eligible; further detail on which households and 
communities are presumed eligible for services; and how to identify 
eligible households and communities beyond those presumed eligible, see 
section General Provisions: Structure and Standards.
    Reorganizations and Cross-References: The final rule reorganizes 
all enumerated eligible uses for impacted and disproportionately 
impacted households into the section Assistance to Households, with the 
exception that expenses to improve the efficacy of economic relief has 
been re-categorized into a different section of the final rule for 
increased clarity; for discussion of that use category, see section 
General Provisions: Other.
    Note that in conducting this reorganization, and based on further 
analysis and in response to comments, Treasury has determined that 
several enumerated uses included in the interim final rule for 
disproportionately impacted communities are directly responsive to 
negative economic impacts experienced by impacted households. In the 
final rule, these uses have been moved from ``disproportionately 
impacted'' to ``impacted'' households accordingly, making these 
services available to both disproportionately impacted and impacted 
households. These uses include assistance applying for public benefits 
or services; programs or services that address or mitigate the impacts 
of the COVID-19 public health emergency on childhood health or welfare, 
including childcare, early learning services, programs to provide home 
visits, and services for families involved in the child welfare system 
and foster youth; programs to address the impacts of lost instructional 
time for students; \112\ and programs or services that address housing 
insecurity, lack of affordable housing, or homelessness.
---------------------------------------------------------------------------

    \112\ For which recipients may presume that any student who did 
not have access to in-person instruction for a significant period of 
time was impacted by the pandemic.
---------------------------------------------------------------------------

    The following activities remain enumerated eligible uses for 
disproportionately impacted households: Remediation of lead paint or 
other lead hazards; housing vouchers and assistance relocating to 
neighborhoods with higher levels of economic opportunity; and programs 
or services that address educational disparities, including assistance 
to high-poverty school districts to advance equitable funding across 
districts and geographies and evidence-based services to address the 
academic, social, emotional, and mental health needs of students.
Enumerated Eligible Uses for Impacted Households
    The interim final rule included several enumerated eligible uses to 
provide assistance to households or populations facing negative 
economic impacts due to COVID-19. Enumerated eligible uses included: 
Food assistance; rent, mortgage, or utility assistance; counseling and 
legal aid to prevent eviction or homelessness; emergency assistance for 
burials, home repairs, weatherization, or other needs; internet access 
or digital literacy assistance; cash assistance; or job training to 
address negative economic or public health impacts experienced due to a 
worker's occupation or level of training. It also posed a question as 
to what other types of services or costs Treasury should consider as 
eligible uses to respond to the negative economic impacts of COVID-19.
    This section addresses each of these enumerated eligible uses in 
turn, with the exception of job training, which has been re-categorized 
for increased clarity to the eligible use for ``assistance to 
unemployed and underemployed workers.'' In general, commenters 
supported inclusion of these enumerated eligible uses to address key 
economic needs among households due to the pandemic, and Treasury is 
maintaining these eligible uses in the final rule, in line with 
commenters' recommendations.
    1. Food assistance. The interim final rule included an enumerated 
eligible use for food assistance. Some commenters expressed support for 
this eligible use and emphasized the importance of aid to address food 
insecurity. Some commenters raised questions as to whether food 
assistance funds could be used to augment services provided through 
organizations like food banks, churches, and other food delivery 
services, or generally be sub-awarded to these organizations.
    Treasury Response: Treasury is maintaining this enumerated eligible 
use without change. Recipients may, as was the case under the interim 
final rule, administer programs through a wide range of entities, 
including nonprofit and for-profit entities, to carry out eligible uses 
on behalf of the recipient government (see section Distinguishing 
Subrecipients versus Beneficiaries). Further, Treasury is clarifying 
that capital expenditures related to food banks and other facilities 
primarily dedicated to addressing food insecurity are eligible; 
recipients seeking to use funds for capital expenditures should refer 
to the section Capital Expenditures in General

[[Page 4360]]

Provisions: Other for additional eligibility standards that apply to 
uses of funds for capital expenditures.
    2. Emergency housing assistance. The interim final rule included an 
enumerated eligible use for rent, mortgage, or utility assistance and 
counseling and legal aid to prevent eviction or homelessness.
    Public Comment: Several commenters supported the inclusion of 
eviction prevention activities as an eligible use given the high number 
of households behind on rent and potentially at risk of eviction. 
Following release of the interim final rule, Treasury had also received 
requests for elaboration on the types of eligible services in this 
category. Some commenters also recommended including assistance to 
households for delinquent property taxes, for example to prevent tax 
foreclosures on homes, as an enumerated eligible use.
    Treasury Response: In response to requests for elaboration on the 
types of eligible services for eviction prevention, Treasury has 
provided further guidance that these services include ``housing 
stability services that enable eligible households to maintain or 
obtain housing, such as housing counseling, fair housing counseling, 
case management related to housing stability, outreach to households at 
risk of eviction or promotion of housing support programs, housing 
related services for survivors of domestic abuse or human trafficking, 
and specialized services for individuals with disabilities or seniors 
that support their ability to access or maintain housing,'' as well as 
``legal aid such as legal services or attorney's fees related to 
eviction proceedings and maintaining housing stability, court-based 
eviction prevention or eviction diversion programs, and other legal 
services that help households maintain or obtain housing.'' \113\ 
Treasury also emphasized that recipients may work with court systems, 
nonprofits, and a wide range of other organizations to implement 
strategies to support housing stability and prevent evictions.
---------------------------------------------------------------------------

    \113\ See FAQ 2.21. Coronavirus State and Local Fiscal Recovery 
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
---------------------------------------------------------------------------

    In the final rule, Treasury is maintaining these enumerated 
eligible uses, including those described in the interim final rule and 
later guidance, in line with commenters' recommendations. To enhance 
clarity, Treasury is also elaborating on some types of services 
included under this eligible use category; this remains a non-
exhaustive list of eligible services. For example, eligible services 
under this use category include: Rent, rental arrears, utility costs or 
arrears (e.g., electricity, gas, water and sewer, trash removal, and 
energy costs, such as fuel oil), reasonable accrued late fees (if not 
included in rental or utility arrears), mortgage payment assistance, 
financial assistance to allow a homeowner to reinstate a mortgage or to 
pay other housing-related costs related to a period of forbearance, 
delinquency, or default, mortgage principal reduction, facilitating 
mortgage interest rate reductions, counseling to prevent foreclosure or 
displacement, relocation expenses following eviction or foreclosure 
(e.g., rental security deposits, application or screening fees). 
Treasury is clarifying that assistance to households for delinquent 
property taxes, for example to prevent tax foreclosures on homes, was 
permissible under the interim final rule and continues to be so under 
the final rule. In addition, Treasury is also clarifying that 
recipients may administer utility assistance or address arrears on 
behalf of households through direct or bulk payments to utility 
providers to facilitate utility assistance to multiple consumers at 
once, so long as the payments offset customer balances and therefore 
provide assistance to households.
    This eligible use category also includes emergency assistance for 
individuals experiencing homelessness, either individual-level 
assistance (e.g., rapid rehousing services) or assistance for groups of 
individuals (e.g., master leases of hotels, motels, or similar 
facilities to expand available shelter).
    Further, Treasury is clarifying that transitional shelters (e.g., 
temporary residences for people experiencing homelessness) are eligible 
capital expenditures. Recipients seeking to use funds for capital 
expenditures should refer to the section Capital Expenditures in 
General Provisions: Other for additional eligibility standards that 
apply to uses of funds for capital expenditures.
    Note that this enumerated eligible use describes ``emergency 
housing assistance,'' or assistance for responses to the immediate or 
near-term negative economic impacts of the pandemic. The final rule 
also clarifies and expands the ability of recipients to use SLFRF funds 
to address the general lack of affordable housing and housing 
challenges underscored by the pandemic. For discussion of affordable 
housing eligible uses, including services that primarily increase 
access to affordable, high-quality housing and support stable housing 
and homeownership over the long term, see the eligible use for 
``promoting long-term housing security: Affordable housing and 
homelessness.''
    3. Emergency assistance for pressing needs: Burials, home repairs, 
weatherization, or other needs. The interim final rule included an 
enumerated eligible use for emergency assistance for burials, home 
repairs, weatherization, and other needs; these types of programs may 
provide emergency assistance for pressing and unavoidable household 
needs. Treasury did not receive comments on this eligible use and is 
maintaining it in the final rule.
    Background on Home Repairs and Weatherization: The economic 
downturn has meant fewer households had the resources needed to make 
necessary home repairs and improvements. In May 2021, 28 percent of 
landlords reported deferring maintenance and 27 percent of tenants 
reported maintenance requests going unanswered.\114\ While small and 
cosmetic repairs can often wait, deferring major repairs, such as 
plumbing needs, can result in unsafe and unhealthy living environments 
and, eventually, the need for more expensive repairs and fixes.
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    \114\ Jung Hyun Choi, Laurie Goodman, and Daniel Pang, The 
Pandemic Is Making It Difficult for Mom-and-Pop Landlords to 
Maintain Their Properties, Urban Institute (July 23, 2021), https://www.urban.org/urban-wire/pandemic-making-it-difficult-mom-and-pop-landlords-maintain-their-properties.
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    In addition to repairs, many homes are in need of weatherization. 
Weatherization assistance helps low- and moderate-income Americans save 
energy, reduce their utility bills, and keeps them and their homes 
safe. One in three households is energy insecure,\115\ meaning they do 
not have the ability to meet their energy needs.\116\ Weatherization 
efforts are particularly important for low- and moderate-income 
households. Households of color, renters, and households with low or 
moderate incomes are all more likely to report energy insecurity.\117\ 
These

[[Page 4361]]

disparities are partially a result of economic hardship but are also 
caused by inequitable access to housing with proper insulation, up to 
date heating, cooling, and ventilation systems, and functioning and up 
to date lighting and appliances.\118\ While programs that address the 
effects of energy hardships, like the Low-Income Home Energy Assistance 
Program (LIHEAP), are critical, weatherization attempts to address root 
causes by addressing issues that lead to energy insecurities.
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    \115\ U.S. Energy Information Administration, Residential Energy 
Consumption Survey (2017), Retrieved from https://www.eia.gov/consumption/residential/data/2015/hc/php/hc11.1.php.
     D. Hern[aacute]ndez, Understanding `energy insecurity' and why 
it matters to health, Social Science & Medicine, 167, 1-10 (2016), 
https://doi.org/10.1016/j.socscimed.2016.08.029.
    \116\ Hern[aacute]ndez, D. (2016). Understanding `energy 
insecurity' and why it matters to health. Social Science & Medicine, 
167, 1-10. https://doi.org/10.1016/j.socscimed.2016.08.029.
    \117\ U.S. Energy Information Administration, Residential Energy 
Consumption Survey (RECS) https://www.eia.gov/consumption/residential/data/2015/hc/php/hc11.1.php. (last visited November 9, 
2021)
    \118\ A. Drehobl, & L. Ross, Lifting the high energy burden in 
America's largest cities: How energy efficiency can improve low 
income and underserved communities, American Council for an Energy 
Efficient Economy (2016), https://www.aceee.org/sites/default/files/publications/researchreports/u1602.pdf.
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    4. Internet access or digital literacy assistance. The interim 
final rule included an enumerated eligible use for assistance to 
households for internet access or digital literacy assistance. This 
enumerated eligible use, which responds to the negative economic 
impacts of the pandemic on a household by providing assistance that 
helps them secure internet access or increase their ability to use 
computers and the internet, is separate from the eligible use category 
for investments in broadband infrastructure, under Sections 
602(c)(1)(D) and 603(c)(1)(D), which is used to build new broadband 
networks through infrastructure construction or modernization. For 
discussion of broadband infrastructure investment in the final rule, 
see section Broadband Infrastructure in Infrastructure.
    Background: The COVID-19 public health emergency has underscored 
the importance of universally available, high-speed, reliable, and 
affordable broadband coverage as millions of Americans rely on the 
internet to participate in, among other critical activities, school, 
healthcare, and work. Recognizing the need for such connectivity, SLFRF 
funds can be used to make necessary investments in broadband 
infrastructure that increase access over the long term, as well as the 
necessary supports to purchase internet access or gain digital literacy 
skills needed to complete activities of daily living during the 
pandemic.
    The National Telecommunications and Information Administration 
(NTIA) highlighted the growing necessity of broadband in daily lives 
through its analysis of NTIA internet Use Survey data, noting that 
Americans turn to broadband internet service for every facet of daily 
life including work, study, and healthcare.\119\ With increased use of 
technology for daily activities and the movement by many businesses and 
schools to operating remotely during the pandemic, broadband has become 
even more critical for people across the country to carry out their 
daily lives.
---------------------------------------------------------------------------

    \119\ See, e.g., Nation Telecommunications and Information 
Administration, More than Half of American Households Used the 
Internet for Health-Related Activities in 2019, NTIA Data Show 
(December 7, 2020), https://www.ntia.gov/blog/2020/more-half-american-households-used-internet-health-related-activities-2019-ntia-data-show; Nation Telecommunications and Information 
Administration, Nearly a Third of American Employees Worked Remotely 
in 2019, NTIA Data Show (September 3, 2020) https://www.ntia.gov/blog/2020/nearly-third-american-employees-worked-remotely-2019-ntia-data-show; and generally, Nation Telecommunications and Information 
Administration, Digital Nation Data Explorer (June 10, 2020), 
https://www.ntia.gov/data/digital-nation-data-explorer.
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    However, even in areas where broadband infrastructure exists, 
broadband access may be out of reach for millions of Americans because 
it is unaffordable, as the United States has some of the highest 
broadband prices in the Organisation for Economic Co-operation and 
Development (OECD).\120\ According to a 2021 Pew Research Center study, 
20 percent of non-broadband users say that the monthly cost of home 
broadband is the primary reason they do not have broadband at home, and 
40 percent say that cost is one reason for their lack of home 
broadband.\121\ Further, according to another survey, 22 percent of 
parents with homebound schoolchildren during the COVID-19 pandemic say 
that it is very or somewhat likely that their children will have to 
rely on public wi-fi to finish their schoolwork because there is no 
reliable internet connection at home; this percentage nearly doubles 
for lower-income parents, 40 percent of whom noted that their children 
will have to rely on public wi-fi.\122\ The same survey showed that 36 
percent of lower-income parents with homebound children say their child 
will not be able to complete their schoolwork because they do not have 
access to a computer at home.\123\
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    \120\ BroadbandSearch Blog Post, How Do U.S. Internet Costs 
Compare To The Rest Of The World?, available at https://www.broadbandsearch.net/blog/internet-costs-compared-worldwide.
    \121\ Pew Research Center, Mobile Technology and Home Broadband 
2021 (June 3, 2021), https://www.pewresearch.org/internet/2021/06/03/mobile-technology-and-home-broadband-2021/.
    \122\ Pew Research Center, 53% of Americans Say the internet Has 
Been Essential During the COVID-19 Outbreak (April 30, 2020), 
https://www.pewresearch.org/internet/2020/04/30/53-of-americans-say-the-internet-has-been-essential-during-the-covid-19-outbreak/.
    \123\ Id.
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    Public Comment: Many commenters highlighted the importance of 
broadband access during the pandemic, including for remote work and 
education, and argued that affordability presents a major barrier to 
broadband adoption by households; in other words, many households live 
in areas that have broadband infrastructure and service available but 
are unable to purchase service for their household due to the high 
cost. These commenters argued that broadband must be affordable to be 
accessible.
    Commenters proposed several potential responses to affordability 
concerns. Some commenters recommended that building ``gap networks,'' 
or broadband networks built at low cost to provide affordable service 
in areas where it is lacking, be eligible as assistance to households 
to respond to the negative economic impacts of the pandemic, even if 
they do not meet the technical standards for eligibility under the 
eligible use category of broadband infrastructure investment, 
especially the required speed standards for new service. These 
commenters argued that the networks have shown promise as a timely 
means to expand access to affordable broadband internet during the 
pandemic, even if they may not provide service speeds needed for more 
intensive internet uses. Another commenter requested eligible uses 
include funding cellular towers to decrease costs. One commenter 
recommended that affordability should be addressed through other 
programs but not SLFRF given that affordability and availability may 
require nuanced solutions that would be complex to combine.
    Treasury Response: The interpretive framework and enumerated 
eligible uses allow recipients flexibility to address identified 
pandemic impacts, including through solutions that take into account 
the particularized issues in their community. Given extensive commenter 
feedback on the importance of affordability to achieving broadband 
access, and the centrality of broadband to participating in work, 
education, healthcare, and other activities during the pandemic, 
affordability programs are an appropriate eligible use to respond to 
the negative economic impacts of the pandemic and Treasury is 
maintaining the enumerated eligible use for assistance to households 
for internet access and digital literacy programs in the final rule.
    Building or constructing new broadband networks is an 
infrastructure investment and is governed by a separate clause in the 
statute. Treasury has addressed comments on ``gap networks'' that 
require infrastructure build-out in the section Broadband 
Infrastructure in Infrastructure.

[[Page 4362]]

    Public Comment: Some commenters also use the term ``gap networks'' 
to refer to equipment installed as part of wi-fi systems, such as 
routers, repeaters, and access points; this equipment provides consumer 
access to an existing broadband network and does not require new 
network build-out or construction. These commenters recommended that 
Treasury permit, as assistance to households for internet access, 
investments in public wi-fi networks, free wi-fi in public housing 
communities, and other equipment that offers internet access to end 
users by utilizing existing broadband networks.
    Other commenters recommended that eligible uses in this category 
include providing devices and equipment necessary to access the 
internet, like computers and routers, directly to low-income 
households.
    Treasury Response: Treasury has determined that these services, 
which expand internet access without constructing new networks, are an 
appropriate enumerated eligible use as assistance to households to 
respond to a negative economic impact, and they are permitted under the 
final rule. Treasury is clarifying that eligible uses under this 
category can also include a wide range of programs and services to 
expand internet access and digital literacy, such as subsidies for the 
cost of internet service, other programs that support adoption of 
internet service where available, digital literacy programs, or 
programs that provide devices and equipment to access the internet 
(e.g., programs that provide equipment like tablets, computers, or 
routers) to households. Recipients seeking to use funds for equipment 
should refer to the section Capital Expenditures in General Provisions: 
Other for additional eligibility standards that apply to uses of funds 
for capital expenditures (e.g., equipment, property, and facilities).
    5. Cash assistance. The interim final rule included as an 
enumerated eligible use cash assistance and provided that cash 
transfers must be ``reasonably proportional'' to the negative economic 
impact they address and may not be ``grossly in excess of the amount 
needed to address'' the impact. In assessing whether a transfer is 
reasonably proportional, recipients may ``consider and take guidance 
from the per person amounts previously provided by the Federal 
Government in response to the COVID-19 crisis,'' and transfers 
``grossly in excess of such amounts'' are not eligible.
    Public Comment: Several commenters expressed support for this 
eligible use, noting that this is a common policy tool for some 
governments to support the well-being of households and individuals in 
their communities. Some commenters requested that Treasury set a 
specific dollar amount for permissible cash transfers, and Treasury has 
also received recipient questions on whether specific types of 
transfers, such as those to a substantial share of the population in 
the jurisdiction, would be a permissible use of funds.
    Treasury Response: Treasury is maintaining this enumerated eligible 
use in the final rule, in line with commenters' recommendations. 
Because the final rule is intended to provide flexibility to recipients 
to respond to the particularized pandemic impacts in their communities, 
which may vary in type and intensity, setting a specific dollar 
threshold for eligible cash transfers would fail to recognize the 
particularized needs of communities and limit recipients' flexibility 
to tailor their response to those needs.
    To provide greater clarity, Treasury is elaborating on the analysis 
that recipients may undertake to assess the eligibility of specific 
cash assistance programs or transfers. Cash transfers, like all 
eligible uses in this category, must respond to the negative economic 
impacts of the pandemic on a household or class of households. For the 
reasons discussed above, recipients may presume that low- and moderate-
income households (as defined in the final rule), as well as households 
that experienced unemployment, food insecurity, or housing insecurity, 
experienced a negative economic impact due to the pandemic.
    Recipients may also identify other households or classes of 
households that experienced a negative economic impact of the pandemic 
and provide cash assistance that is reasonably proportional to, and not 
grossly in excess of, the amount needed to address the negative 
economic impact. For example, in the ARPA, Congress authorized Economic 
Impact Payments to households at certain income levels, identifying and 
responding to a negative economic impact of the pandemic on these 
households.
    Finally, Treasury has reiterated in the final rule that responses 
to negative economic impacts should be reasonably proportional to the 
impact that they are intended to address. Uses that bear no relation or 
are grossly disproportionate to the type or extent of harm experienced 
would not be eligible uses. Reasonably proportional refers to the scale 
of the response compared to the scale of the harm. It also refers to 
the targeting of the response to beneficiaries compared to the amount 
of harm they experienced; for example, it may not be reasonably 
proportional for a cash assistance program to provide assistance in a 
very small amount to a group that experienced severe harm and in a much 
larger amount to a group that experienced relatively little harm.
    6. Survivor's benefits. The interim final rule included an 
enumerated eligible use for survivor's benefits to surviving family 
members of individuals who have died from COVID-19, including cash 
assistance to widows, widowers, or dependents.
    Public Comment: Treasury did not receive any comments on the 
inclusion of survivor's benefits as an enumerated use for impacted 
households in the interim final rule.
    Treasury Response: This use of funds remains eligible under the 
final rule. Consistent with the general reorganization noted above, the 
final rule organizes survivor's benefits under assistance to households 
to clarify that households are the intended beneficiaries of survivor's 
benefits.
    7. Assistance accessing or applying for public benefits or 
services. Recognizing that eligible households often face barriers to 
accessing public benefits or services that improve health and economic 
outcomes, the interim final rule included as an enumerated eligible use 
in disproportionately impacted communities, public benefits navigators 
to assist community members with navigating and applying for available 
federal, state, and local public benefits or services. Treasury also 
clarified in subsequent guidance after the interim final rule that this 
eligible use category would include outreach efforts to increase uptake 
of the Child Tax Credit.
    Background: The under-enrollment of eligible households in social 
assistance programs is a well-recognized and persistent challenge. 
There are many reasons why a household may not be receiving a 
particular benefit even though they are eligible. For many federal 
programs, enrollment processes vary from state-to-state. Sometimes, 
households are simply unaware that they are eligible for a particular 
benefit.\124\ For example, despite having one of the highest rates of 
participation of any benefits program, nearly 20 percent of eligible 
individuals do not participate in the Supplementary Nutritional 
Assistance Program

[[Page 4363]]

(SNAP).\125\ In other cases, policies like public charge and asset 
testing can discourage otherwise eligible households.\126\ While the 
gap between households that need assistance and the number of 
households participating in public benefit programs has always existed, 
narrowing that gap and ensuring households receive the support they 
need is critical in mitigating the negative economic impacts of the 
pandemic.
---------------------------------------------------------------------------

    \124\ Amy Finkelstein & Matthew J Notowidigdo, Take-Up and 
Targeting: Experimental Evidence from SNAP, The Quarterly Journal of 
Economics, vol 134(3), pages 1505-1556 (2019), https://www.nber.org/papers/w24652.
    \125\ United States Department of Agriculture, Trends in 
Supplemental Nutrition Assistance Program Participation Rates: 
Fiscal Year 2016 to Fiscal Year 2018 (May 2021), https://fns-prod.azureedge.net/sites/default/files/resource-files/Trends2016-2018.pdf.
    \126\ Jeremy Barofsky et al., Spreading Fear: The Announcement 
Of The Public Charge Rule Reduced Enrollment In Child Safety-Net 
Programs, Health Affairs (October 2020), https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2020.00763.
---------------------------------------------------------------------------

    Public Comment: Treasury has also received feedback from recipients 
and stakeholders noting the need to increase awareness and uptake of 
assistance programs, including gaps that remain in enrollment of 
eligible households in programs to address the negative economic 
impacts of the pandemic.\127\
---------------------------------------------------------------------------

    \127\ See, e.g., U.S. Department of the Treasury, By ZIP Code: 
Number of Children under Age 18 with a Social Security Number Who 
Are Not Found on a Tax Year 2019 or 2020 Tax Return but who Appear 
on a Tax Year 2019 Form 1095 and Associated Number of Policy Holders 
(June 2021), https://home.treasury.gov/system/files/131/Estimated-Counts-of-Children-Unclaimed-for-CTC-by-ZIP-Code-2019.pdf.
---------------------------------------------------------------------------

    Treasury Response: Treasury has determined that this impact of the 
pandemic is widely experienced across many jurisdictions and programs 
or services to increase awareness and uptake of assistance programs 
would respond to the pandemic's negative economic impact in all 
communities. As such, in the final rule, this use is eligible for any 
impacted household or class of households, not only in 
disproportionately impacted communities.
    8. Promoting healthy childhood environments. The interim final rule 
included programs and services that promote healthy childhood 
environments as an enumerated eligible use for disproportionately 
impacted households. The interim final rule listed three programs or 
services included under this use: Childcare; programs to provide home 
visits by health professionals, parent educators, and social service 
professionals to individuals with young children to provide education 
and assistance for economic support, health needs, or child 
development; and services for child welfare-involved families and 
foster youth to provide support and education on child development, 
positive parenting, coping skills, or recovery for mental health and 
substance use. The interim final rule also included an enumerated 
eligible use for early learning services in disproportionately impacted 
communities, to address disparities in education.
    Public Comment: Childcare and Early Learning: Treasury received 
multiple comments that were supportive of the provision of childcare. 
Treasury has also received multiple comments and questions indicating 
that recipients have identified a need for childcare for a broader 
range of households and communities, for example those that may need 
childcare in order to return to work, in addition to households and 
communities disproportionately impacted by the pandemic. Several 
commenters expressed uncertainty about how childcare facilities should 
interact with the boundaries of a QCT. Finally, one commenter 
recommended that pre-K or early learning services encompass care for 
infants and toddlers, arguing that these types of care are often more 
expensive or challenging to access for families.
    Background: Childcare and Early Learning: As daycares and schools 
closed in-person activities during the pandemic, many working families 
were left without childcare during the day.\128\ Although daycare 
centers and schools have since reopened in many communities, there 
remains a persistent childcare shortage as childcare employment levels 
have not fully rebounded since the sharp decline in childcare 
employment at the beginning of the pandemic.\129\ As a result, working 
parents in communities across the country, and more specifically women, 
may face challenges entering or reentering the labor force.\130\
---------------------------------------------------------------------------

    \128\ Women have carried a larger share of childcare 
responsibilities than men during the COVID-19 crisis. See, e.g., 
Gema Zamarro & Mar[inodot][acute]a J. Prados, Gender differences in 
couples' division of childcare, work and mental health during COVID- 
19, Rev. Econ. Household 19:11-40 (2021), available at https://link.springer.com/article/10.1007/s11150-020-09534-7; Titan Alon et 
al., The Impact of COVID-19 on Gender Equality, National Bureau of 
Economic Research Working Paper 26947 (April 2020), available at 
https://www.nber.org/papers/w26947.
    \129\ See, e.g., Center For The Study Of Child Care Employment 
(CSCCE), Child Care Sector Jobs: BLS Analysis (November 8, 2021), 
https://cscce.berkeley.edu/child-care-sector-jobs-bls-analysis/; 
Emma K. Lee, and Zachary Parolin. The Care Burden during COVID-19: A 
National Database of Child Care Closures in the United States, 
Socius (January 2021), doi:10.1177/23780231211032028.
    \130\ Jason Furman, Melissa Schettini Kearney, and Wilson 
Powell, The Role of Childcare Challenges in the US Jobs Market 
Recovery During the COVID-19 Pandemic, NBER Working Paper No. 28934 
(June 2021), https://www.nber.org/papers/w28934.
---------------------------------------------------------------------------

    Low-income households are also more likely to lose access to 
quality childcare.\131\ The widespread closure of childcare centers 
combined with a lack of access to paid family leave means parents in 
low-income households are more likely to experience a reduction of 
income or leave their jobs due to a lack of childcare options.\132\
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    \131\ U.S. Census Bureau, Phase 3.2 Household Pulse Survey: 
Table 2. Childcare Arrangements in the Last 4 Weeks for Children 
Under 5 Years Old, by Selected Characteristics, (Washington: 2021), 
available at https://www.census.gov/programs-surveys/household-pulse-survey/data.html.
    \132\ Id.
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    Additionally, childcare providers serving primarily low-income 
families were less likely to remain open during the pandemic because of 
tighter profit margins and general community financial insecurity, 
compared to childcare providers serving primarily high-income 
families.\133\ \134\
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    \133\ N. Kalluri, C. Kelly, & A. Garg, Child Care During the 
COVID-19 Pandemic: A Bad Situation Made Worse. Pediatrics (2021), 
https://doi.org/10.1542/peds.2020-041525.
    \134\ National Association for the Education of Young Children, 
Am I Next? Sacrificing to Stay Open, Child Care Providers Face a 
Bleak Future Without Relief (December 2020), https://www.naeyc.org/sites/default/files/globally-shared/downloads/PDF.
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    In addition to disruptions to childcare, early learning services 
were also significantly impacted by the pandemic, and the disruption of 
these services had widespread ramifications for learning loss, parental 
support, and equity. Early learning centers have seen declined 
enrollment across the board, though there was a larger dip in 
enrollment for low-income households.\135\ This lower enrollment 
coincides with a diminishing workforce, as similarly to childcare, 
early childhood educators have been leaving the profession due to long 
hours, low pay,\136\ and health and safety concerns.\137\ As a result, 
children's school readiness has suffered, leading to potential long-
term impacts on life outcomes.\138\ The impact also extended

[[Page 4364]]

to parents. Parents, especially mothers, may face challenges reentering 
or remaining in the workforce if early learning services are 
unavailable.
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    \135\ G. G. Weisenfeld, Impacts of Covid-19 on Preschool 
Enrollment and Spending, New Brunswick, NJ: National Institute for 
Early Education Research (2021), https://nieer.org/wp-content/uploads/2021/03/NIEER_Policy_Brief_Impacts-of-Covid-19on_Preschool_Enrollment_and_Spending_3_16_21.pdf.
    \136\ Heather Long, `The pay is absolute crap': Child-care 
workers are quitting rapidly, a red flag for the economy, Washington 
Post (September 19, 2021), https://www.washingtonpost.com/business/2021/09/19/childcare-workers-quit/.
    \137\ Monash University, The emotional toll of COVID-19 among 
early childhood educators (August 5, 2020) https://lens.monash.edu/@education/2020/08/05/1381001/the-emotional-toll-of-covid-19-among-early-childhood-educators.
    \138\ Daphna Bassok and Anna Shapiro, Understanding COVID-19-era 
enrollment drops among early-grade public school students, Brookings 
Institution (February 22, 2021), https://www.brookings.edu/blog/brown-center-chalkboard/2021/02/22/understanding-covid-19-era-enrollment-drops-among-early-grade-public-school-students/.
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    Treasury Response: Childcare and Early Learning Services: Treasury 
agrees with commenters' analysis that challenges accessing or affording 
childcare have been widespread during the pandemic, affecting many 
jurisdictions and populations across the country. Disruptions to early 
care and learning services similarly have had broad impact and likely 
result in negative impacts for young children and their parents. As 
such, these enumerated eligible uses are generally responsive to the 
negative economic impacts of the pandemic in all communities, not just 
in disproportionately impacted communities. Under the final rule, 
childcare and early learning services are available to impacted 
households or classes of households, not just those disproportionately 
impacted. These eligible uses can include new or expanded services, 
increasing access to services, efforts to bolster, support, or preserve 
existing providers and services, and similar activities.
    Further, Treasury is clarifying that improvements to or new 
construction of childcare, daycare, and early learning facilities are 
eligible capital expenditures. Recipients seeking to use funds for 
capital expenditures should refer to the section Capital Expenditures 
in General Provisions: Other for additional eligibility standards that 
apply to uses of funds for capital expenditures.
    Public Comment: Home Visiting: Treasury has also received questions 
about whether the provision of home visiting services would be 
responsive to the health and mental health needs of impacted new 
mothers, citing the positive mental health impacts shown on the mother 
as well as improved outcomes for children.
    Background: Home Visiting: Pregnant and recently pregnant 
individuals are at an increased risk for serious illness from COVID-
19.\139\ Furthermore, pregnant individuals with COVID-19 are more 
likely to experience preterm birth (delivering the baby earlier than 37 
weeks).\140\ In addition to heightened health risks from COVID-19, 
pregnant individuals may have experienced significant changes to their 
prenatal care during the pandemic \141\ or may also have experienced 
increased mental health challenges, including high levels of 
depression, anxiety, loneliness, and post-traumatic stress during the 
pandemic.\142\
---------------------------------------------------------------------------

    \139\ Centers for Disease Control and Prevention, Pregnant and 
Recently Pregnant People, https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/pregnant-people.html (last visited November 
9, 2021).
    \140\ Id.
    \141\ Sarah Javaid, Sarah Barringer, Sarah D Compton, Elizabeth 
Kaselitz, Maria Muzik, Cheryl A. Moyer, The impact of COVID-19 on 
prenatal care in the United States: Qualitative analysis from a 
survey of 2519 pregnant women, Midwifery, Volume 98, 2021, 102991, 
ISSN 0266-6138, https://doi.org/10.1016/j.midw.2021.102991.
    \142\ A Basu, HH Kim, R Basaldua, KW Choi, L Charron, et al., A 
cross-national study of factors associated with women's perinatal 
mental health and wellbeing during the COVID-19 pandemic, PLOS ONE 
16(4): e0249780, (2021), https://doi.org/10.1371/journal.pone.0249780.
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    Home visiting services provided to families, particularly new 
mothers and newborns, feature regular home visits from trained nurses, 
social workers, and/or counselors who provide health care, mental 
health resources, positive parenting support, support in making 
personal health decisions, and awareness of other potentially helpful 
services. These functions have become even more essential at mitigating 
negative factors associated with the pandemic. Home visits give 
professionals a chance to flag potential domestic violence, which has 
risen worldwide over the course of the pandemic.\143\ Racial health 
disparities can also be driven down by home visits. For example, Black 
women are more likely to avoid hospitals during the pandemic, and home 
visitors can help either assuage concerns around hospitals or give 
effective advice for alternative methods of childbirth.\144\ Given the 
disproportionate effect of the pandemic on people of color, home visits 
are an essential equity tool that tackle major negative effects of the 
pandemic. These are just a few selections from the evidence that 
suggests many home visiting models can have a positive effect on 
maternal physical and mental health.\145\
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    \143\ Amanda Taub, A New Covid-19 Crisis: Domestic Abuse Rises 
Worldwide, New York Times (April 6, 2020), https://www.nytimes.com/2020/04/06/world/coronavirus-domestic-violence.html.
    \144\ Xenia Shih Bion, Efforts to Reduce Black Maternal 
Mortality Complicated by COVID-19, California Health Care Foundation 
(April 20, 2020), https://www.chcf.org/blog/efforts-reduce-black-maternal-mortality-complicated-covid-19/.
    \145\ U.S. Department of Health and Human Services, Home 
Visiting Evidence of Effectiveness, https://homvee.acf.hhs.gov/outcomes/maternal%20health/In%20Brief.
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    Treasury Response: Home Visiting: Given the widespread impact of 
COVID-19 on pregnant and recently pregnant individuals, Treasury is re-
categorizing home visiting services as an eligible use for impacted 
communities, not just disproportionately impacted communities. Under 
the final rule, these eligible uses are available to impacted 
households or classes of households.
    Public Comment: Child Welfare: While the interim final rule noted 
that certain types of assistance, particularly around child development 
and parenting, were eligible for child welfare-involved families, 
Treasury has received some recipient questions asking whether 
financial, educational, housing, or other supports and services are 
eligible uses for foster youth, including those aging out of the 
system, and child welfare-involved families. Other commenters asked 
about whether funding for kinship care would be eligible.
    Background: Child Welfare: The COVID-19 pandemic placed meaningful 
strain on the child welfare and foster care system. Court hearings were 
delayed,\146\ essential mental health care was shifted to a virtual 
environment, and attendance and performance in school among foster 
children dropped sharply.\147\ Additionally, there was a nationwide 
rise of new children entering the foster care system and many states 
placed temporary moratoria on children aging out of the foster care 
system.\148\ As these temporary moratoria expire, additional support 
will be needed to assist children exiting the system.
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    \146\ National Conference of State Legislatures, Criminal 
Justice System Responses to COVID-19 (November 16, 2020), https://www.ncsl.org/research/civil-and-criminal-justice/criminal-justice-and-covid-19.aspx.
    \147\ John Burton Advocates for Youth, The Cumulative Impact of 
the Pandemic on Youth Who Have Been in Foster Care or Homeless (May 
2020) https://jbay.org/wp-content/uploads/2021/04/JBAY-COVID-19-Impact.pdf.
    \148\ John Kelly, Next Week, Thousands of Foster Youth Will Age 
Out on the Same Day (September 21, 2021), https://imprintnews.org/subscriber-content/thousands-of-foster-youth-will-age-out-on-the-same-day/59006.
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    Additionally, financial and material hardship are causal factors in 
the increase of new children entering the foster care system, whether 
through loss of a caregiver, domestic violence,\149\ or other 
associated costs of the pandemic. Therefore, support to decrease these 
hardships will support families and increase positive outcomes for 
youth

[[Page 4365]]

and families that may otherwise become involved in the child welfare 
system.
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    \149\ Conrad-Hiebner, Aislinn, and Elizabeth Byram, The Temporal 
Impact of Economic Insecurity on Child Maltreatment: A Systematic 
Review. Trauma, Violence, & Abuse, vol. 21, no. 1, Jan. 2020, pp. 
157-178, doi:10.1177/1524838018756122.
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    Treasury Response: In the final rule, Treasury is clarifying that 
services to foster youth, including those aging out of the system, and 
child welfare-involved families may encompass a wide array of 
financial, educational, child development, or health supports, or other 
supports necessary, including supports for kinship care.
    9. Addressing the impacts of lost instructional time.
    Public Comment: The interim final rule included an enumerated 
eligible use to address educational disparities in disproportionately 
impacted communities, recognizing that underserved students have been 
more severely impacted by the pandemic and including responsive 
services for early learning, enhance funding to high-poverty districts, 
and providing evidence-based services to address the academic, social, 
emotional, and mental health needs of students. Some commenters 
expressed concerns that learning loss or the negative impacts of lost 
instructional time due to school closures or remote education during 
the pandemic had affected a significant share of students in grades 
kindergarten through twelve (K-12), including students who may not fall 
within a disproportionally impacted group.
    Background: The COVID-19 pandemic resulted in the widespread 
closure of schools across the nation. While many schools and districts 
reopened to in-person instruction or implemented remote learning, the 
shift was not immediate or without consequence. Children who received 
virtual only or combined remote and in-person instruction were more 
likely to report experiencing negative mental- and physical health 
outcomes than children who received in-person instruction.\150\
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    \150\ Verlenden JV, Pampati S, Rasberry CN, et al. Association 
of Children's Mode of School Instruction with Child and Parent 
Experiences and Well-Being During the COVID-19 Pandemic--COVID 
Experiences Survey, United States, October 8-November 13, 2020. MMWR 
Morb Mortal Wkly Rep 2021;70:369-376. DOI: http://dx.doi.org/10.15585/mmwr.mm7011a1external icon.
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    Treasury Response: Under the final rule, addressing the impact of 
lost instructional time and/or learning loss is an enumerated eligible 
use for impacted households. When providing services to address lost 
instructional time, recipients may presume that any K-12 student who 
lost access to in-person instruction for a significant period of time 
has been impacted by the pandemic and is thus eligible for responsive 
services.
    Interventions or services that address the impact of lost 
instructional time may include offering high-quality tutoring and other 
extended learning opportunities, providing differentiated instruction, 
implementing activities to meet the comprehensive needs of students, 
expanding and improving language access for parents and families, 
providing information and assistance to parents and families on how 
they can effectively support students, including in a distance learning 
environment, improving student engagement in distance education, and 
administering and using high-quality assessments to assess students' 
academic progress, among others. In designing services under this 
eligible use, recipients may wish to reference guidance from the 
Department of Education on strategies for addressing lost instructional 
time.\151\
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    \151\ U.S. Department of Education, Strategies for Using 
American Rescue Plan Funding to Address the Impact of Lost 
Instructional Time, August 2021. Retrieved from https://www2.ed.gov/documents/coronavirus/lost-instructional-time.pdf.
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    The final rule also maintains a separate enumerated eligible use 
for addressing educational disparities in disproportionately impacted 
communities. This eligible use includes services to address disparities 
in educational outcomes that predate the pandemic and amplified its 
impact on underserved students; these include, for example, enhanced 
funding to high-poverty districts and providing evidence-based services 
to address the academic, social, emotional, and mental health needs of 
students.
    Finally, as described in the section Public Health, recipients can 
provide a broad range of behavioral health services, including services 
for children and youth in schools, to respond to the impacts of the 
pandemic on mental health and other behavioral health issues. When 
providing behavioral health services, recipients may presume that the 
general public was impacted by the pandemic and provide behavioral 
health services to members of the general public, including children 
and youth in schools, without any further analysis of impacts of the 
pandemic on those individuals and whether the service is responsive.
    10. Promoting long-term housing security: affordable housing and 
homelessness. Under the interim final rule, recipients may use SLFRF 
funds to provide a set of housing services to communities that have 
been disproportionately impacted by the pandemic. Specifically, the 
interim final rule provided that programs or services that address 
housing insecurity, lack of affordable housing, or homelessness, were 
responsive to the negative economic impacts of the pandemic when 
provided to disproportionately impacted households and communities. The 
enumerated uses included supportive housing or other programs or 
services to improve access to stable, affordable housing among 
individuals who are homeless and development of affordable housing to 
increase supply of affordable and high-quality living units. Many 
recipients have already announced plans to use SLFRF funds for 
affordable housing interventions in all of these categories. Treasury 
received many comments asking for additional clarity or flexibility in 
these uses.
    As detailed below, based on multiple public comments and questions 
and Treasury's subsequent analysis, Treasury has determined that 
supportive housing or other programs or services to improve access to 
stable, affordable housing among individuals who are homeless, and the 
development of affordable housing to increase supply of affordable and 
high-quality living units are responsive to the needs of impacted 
populations, not only disproportionately impacted populations. This 
final rule reflects this clarification and builds on the objectives 
stated in the interim final rule to improve access to stable, 
affordable housing, including through interventions that increase the 
supply of affordable and high-quality living units, improve housing 
security, and support durable and sustainable homeownership.
    Finally, note that ``emergency housing assistance,'' or assistance 
for responses to the immediate negative economic impacts of the 
pandemic through services like financial assistance for rental arrears 
or mortgage payments, is also an eligible use category for assistance 
to households under the final rule; see the eligible use for 
``emergency housing assistance'' above. The provision of housing 
vouchers and assistance relocating to neighborhoods with higher levels 
of economic opportunity remains an eligible use under assistance to 
disproportionately impacted households; for discussion, see the 
eligible use for ``housing vouchers and assistance relocating'' below.
    Background: Affordable Housing: It is clear that the ongoing 
pandemic and resulting economic crisis are having a profound, long-term 
negative effect on the pre-existing affordable housing crisis facing 
low-income households.\152\

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The combination of a large number of higher-income households who have 
weathered the pandemic without significant income losses, low interest 
rates, and housing supply constraints exacerbated by the pandemic, have 
driven a sharp increase in the sale price of homes.\153\ Meanwhile, 
many low-income renters and homeowners are struggling with lost 
employment and income and are behind on their housing payments.\154\
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    \152\ Consumer Financial Protection Bureau, Housing insecurity 
and the COVID-19 pandemic (March 2020), https://files.consumerfinance.gov/f/documents/cfpb_Housing_insecurity_and_the_COVID-19_pandemic.pdf.
    \153\ Joint Center For Housing Studies Of Harvard University, 
The State of the Nation's Housing (June 2021), https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_State_Nations_Housing_2021.pdf.
    \154\ Davin Reed and Eileen Divringi, Household Rental Debt 
During COVID-19: Update for 2021, Federal Reserve Bank of 
Philadelphia (2020), available at: https://www.philadelphiafed.org/community-development/housing-and-neighborhoods/household-rental-debt-during-covid-19-update-for-2021. Further, some research 
suggests that liquidity may be a more important predictor of default 
than other factors, including income or equity. See Trading Equity 
for Liquidity (June 2019), available at https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/institute/pdf/institute-trading-equity-for-liquidity.pdf.
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    Public Comment: Affordable Housing Outside of Low-Income 
Geographies: A major theme in comments was that affordable housing 
interventions, especially development of affordable housing, should be 
allowed outside of QCTs, as concentrating the supply of affordable 
housing in low-income geographies can have the effect of increasing 
both concentrated poverty and racial and economic segregation, while 
locking lower-income households in need of housing support out of high-
opportunity neighborhoods with access to employment and amenities.
    Treasury Response: Affordable Housing Outside Low-Income 
Geographies: As previously stated, affordable housing is not confined 
to low-income geographies under the interim final rule. As discussed 
elsewhere, the interim final rule presumed that QCTs, as well as 
communities served by Tribal governments, were disproportionately 
impacted for administrative convenience, but recipients may identify 
other populations, households, or geographic areas with disparate 
impacts of COVID-19 and provide affordable housing services to them. 
For example, under the interim final rule, a city could determine that 
its low-income residents faced disproportionate impacts of COVID-19 and 
develop affordable housing targeted to these households. Such a 
scenario could include, for example, affordable projects in higher-
income neighborhoods that would allow residents to live closer to jobs 
and well-resourced schools.
    Additionally, as noted above, Treasury is finalizing the rule with 
some changes to the treatment of affordable housing development 
designed to clarify that permanent supportive housing or other programs 
or services to improve access to stable, affordable housing among 
individuals who are homeless, and the development of affordable housing 
to increase supply of affordable and high-quality living units, are 
responsive to individuals and households that were impacted by the 
pandemic in addition to those that were disproportionately impacted. 
This shift is in line with commenters' recommendations and consistent 
with the facts described above, which demonstrate that lack of supply 
of affordable housing units contributed to the pandemic's impact on 
housing insecurity and unsustainable housing cost burdens and that 
these impacts were experienced broadly across the country.
    Public Comment: Eligible Activities: Many commenters asked for 
clarity on what types of activities (e.g., land acquisition, 
construction, pre-construction costs, operating costs, etc.) are 
eligible uses of SLFRF, and what affordability criteria must be applied 
to affordable housing development. Commenters encouraged Treasury to 
allow the full array of affordable housing activities, including 
particular requests for broad flexibility for Tribal communities, and 
to specify that ``development'' should include construction, 
preservation, rehabilitation, and operation. Other commenters requested 
clarification about permissible program administration approaches for 
affordable housing, such as contracting methods and distribution of 
funds.
    Some commenters asked that Treasury require SLFRF funds to be 
focused on the lowest-income households, who suffer the most severe 
rent burdens and risks of housing instability, and whose housing 
situation has left them particularly vulnerable to COVID-19. For 
example, one commenter argued that SLFRF funds should only be used to 
support affordable housing for households making 50 percent of AMI or 
less and that recipients should be required to set aside significant 
portions of any developments for renters making 30 percent of AMI or 
less and persons with physical and sensory disabilities. Other 
commenters requested a more flexible approach to affordable housing 
definitions.
    Treasury Response: Eligible Activities: The final rule clarifies 
eligibility of affordable housing development for recipients; these 
uses were eligible under the interim final rule, but Treasury is 
providing further guidance to enhance clarity and respond to recipient 
and commenter questions.
    As with all interventions to address the negative economic impacts 
of the pandemic, affordable housing projects must be responsive and 
proportional to the harm identified. This test may be met by affordable 
housing development projects--which may involve large expenditures and 
capital investments--if the developments increase the supply of long-
term affordable housing for low-income households. While there may be 
less costly (or non-capital) alternatives to affordable housing 
development, a comprehensive response to the widespread housing 
challenges underscored by the pandemic will require the production of 
additional affordable homes, and targeted affordable housing 
development is a cost-effective and proportional response to this need.
    For purposes of this test, Treasury will presume that any projects 
that would be eligible for funding under either the National Housing 
Trust Fund (HTF) or the Home Investment Partnerships Program (HOME) are 
eligible uses of SLFRF funds. Note that these programs use different 
income limits than the definition of low- and moderate-income adopted 
by Treasury. Given the severity of the affordable housing shortage, and 
the ways in which the pandemic has exacerbated the need for affordable, 
high-quality dwelling units, Treasury has determined that the 
households served by these federal housing programs have been impacted 
by the pandemic and its negative economic impacts and that development 
of affordable housing consistent with these programs is a related and 
reasonably proportional response to those impacts. Additionally, 
affordable housing projects provided by a Tribal government are 
eligible uses of SLFRF if they would be eligible for funding under the 
Indian Housing Block Grant program, the Indian Community Development 
Block Grant program, or the Bureau of Indian Affairs Housing 
Improvement Program. Alignment with these programs, which define 
``affordable housing'' in a manner consistent with a proportionate 
response to the affordable housing challenges faced by low- and 
moderate-income households as a result of the negative economic impacts 
of the pandemic, is intended to give recipients comfort and clarity as 
they design a

[[Page 4367]]

wide variety of affordable housing interventions, including production, 
rehabilitation, and preservation of affordable rental housing and, in 
some cases, affordable homeownership units. These programs allow the 
financing of a wide range of affordable housing activities and set 
clear eligibility criteria that many recipients are already familiar 
with.
    Finally, to further support sustainable and durable homeownership, 
recipients may consider offering down payment assistance, such as 
through contributions to a homeowner's equity at origination or that 
establish a post-closing, mortgage reserve account on behalf of the 
borrower that may be utilized to make a missed or partial mortgage 
payment at any point during the life of the loan (e.g., if the borrower 
faces financial stress). Homeownership assistance that would be 
eligible under the Community Development Block Grant (at 24 CFR 
507.201(n)) is also an eligible use of SLFRF funds.
    Public Comment: Permanent Supportive Housing: Treasury has received 
comments encouraging the use of SLFRF funds for permanent supportive 
housing. This is an eligible use under the interim final rule: Both the 
development of affordable housing (including operating subsidies) and 
wraparound services such as behavioral health services, employment 
services, and other supportive services, are eligible responses to the 
public health crisis or its negative economic impacts.
    Treasury Response: The final rule maintains the eligibility of 
permanent supportive housing as an enumerated use. Treasury is also 
clarifying that other affordable housing developments targeted to 
specialized populations are also eligible, for example recovery housing 
for individuals in recovery from substance use.
    Public Comment: Operating Expenses: Commenters specifically asked 
that Treasury allow the use of SLFRF funds for operating expenses of 
affordable housing units, as operating subsidies are typically required 
to reach extremely low-income households, whose affordable rents may be 
lower than the ongoing cost of operating their unit.
    Treasury Response: Operating expenses for eligible affordable 
housing were an eligible use of funds under the interim final rule and 
the final rule maintains this treatment. This may include capitalized 
operating reserves.
    Rehabilitation and repair of public housing will also be considered 
an eligible use of SLFRF funds.
    Public Comment: Affordable Housing Loans and Revolving Loan Funds: 
Some commenters requested that loans with maturities beyond the period 
of performance or revolving loan funds that revolve beyond the period 
of performance be eligible uses of SLFRF funds if used for affordable 
housing. Some commenters pointed out that for-profit developers of low-
income housing through the Low-Income Housing Tax Credit (LIHTC) may be 
deterred from accepting grants to bridge funding gaps in current LIHTC 
deals by the treatment of grants to for-profit entities in the 
calculation of eligible basis for the LIHTC.
    Treasury Response: The final rule does not change the treatment of 
loans from the interim final rule. For more details see section 
Treatment of Loans in Program Administration Provisions. Similarly, the 
final rule does not change the treatment of grants to support 
affordable housing development, including developments supported by the 
LIHTC: such grants are an eligible use of funds.
    Additional enumerated eligible uses for assistance to impacted 
households. As noted above, the interim final rule posed a question on 
what other types of services or costs Treasury should consider as 
eligible uses to respond to the negative economic impacts of COVID-19. 
In response, commenters proposed a wide variety of additional 
recommended enumerated eligible uses to assist households, ranging from 
general categories of services (e.g., legal and social services) to 
services that respond to needs widely experienced across the country 
(e.g., access to and affordability of health insurance) to services 
that are most applicable to the particularized needs of certain 
populations or geographic areas of the United States (e.g., senior 
citizens, SNAP recipients, immigrants, formerly-incarcerated 
individuals, responding to environmental issues in certain geographic 
regions). Other commenters generally requested a high degree of 
flexibility to respond to the particular needs of their communities.
    Treasury Response: Given the large number and diversity of SLFRF 
recipients, Treasury's approach to assistance to households in the 
final rule aims to clarify additional enumerated eligible uses that 
respond to negative economic impacts of the pandemic experienced widely 
in many jurisdictions across the country, making it clear and simple 
for recipients to pursue these enumerated eligible uses under the final 
rule. In the final rule, Treasury is clarifying several additional 
uses, which generally respond to pandemic impacts experienced broadly 
across jurisdictions and populations, are eligible under the interim 
final rule as assistance to households and continue to be so under the 
final rule, as outlined below.
    11. Paid sick, medical, or family leave.
    Public Comment: Some commenters argued that the pandemic increased 
the need for paid sick or medical leave, as staying home when ill is 
recommended by the CDC to prevent spread of the virus but lack of 
access to paid sick leave often prevents workers from staying home. 
Other commenters recommended paid family leave as an eligible use, 
arguing that shortages in access to childcare or home health 
assistance, as well as school closures, may increase the need for 
family members to serve as caretakers.
    Background: The COVID-19 pandemic highlighted the importance of 
paid leave as well as the number of workers who do not have access to 
paid sick and/or family leave. When workers have access to paid leave, 
they are less likely to report to work sick, and therefore less likely 
to spread illnesses in the workplace: One study demonstrates that the 
emergency sick leave provision of the Families First Coronavirus 
Response Act (FFCRA) reduced the spread of COVID-19.\155\
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    \155\ Stefan Pichler, Katherine Wen, and Nicolas R. Ziebarth, 
COVID-19 Emergency Sick Leave Has Helped Flatten The Curve In The 
United States: Study examines the impact of emergency sick leave on 
the spread of COVID-19, Health Affairs 39, no. 12 (2020): 2197-2204, 
https://www.healthaffairs.org/doi/10.1377/hlthaff.2020.00863.
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    The lack of paid leave exacerbates financial hardships experienced 
as a result of the public health emergency. A 2018 survey by the 
Department of Labor found that two-thirds of employees that took unpaid 
or partial-paid leave experienced financial hardship.\156\ Furthermore, 
because the Family and Medical Leave Act (FMLA) excludes small 
employers, part-time workers, and workers who have been with their 
employer for less than a year, 44 percent of workers do not have access 
to even unpaid leave.\157\ Workers of color and workers with lower 
incomes are less likely to have access to paid leave.<SUP>158 159</SUP>
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    \156\ Scott Brown et al., Employee and Worksite Perspectives of 
the Family and Medical Leave Act: Results from the 2018 Surveys, Abt 
Associates (July 2020), https://www.dol.gov/sites/dolgov/files/OASP/evaluation/pdf/WHD_FMLA2018SurveyResults_FinalReport_Aug2020.pdf.
    \157\ Id.
    \158\ Ann P. Bartel et al., Racial and ethnic disparities in 
access to and use of paid family and medical leave: evidence from 
four nationally representative datasets, U.S. Bureau of Labor 
Statistics (BLS) (January 2019), https://www.bls.gov/opub/mlr/2019/article/racial-and-ethnic-disparities-in-access-to-and-use-of-paid-family-andmedical-leave.htm.
    \159\ U.S. Bureau of Labor Statistics, Employee Benefits in the 
United States (March 2019), https://www.bls.gov/ncs/ebs/benefits/2019/ownership/civilian/table31a.pdf.

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[[Page 4368]]

    For workers that are also caregivers for children, seniors, or 
other family members, there may be a similar need for--and benefits 
of--paid family leave. For example, some workers may have struggled 
during the pandemic to balance caring for children, as schools and 
daycares closed, and working. For new parents, paid parental leave 
results in fewer infant hospitalizations, lowering parental stress, 
increasing parental involvement, and improving the overall health of 
parent and child.\160\ COVID-19 has also increased the levels of 
``caregiving intensity'' \161\ and ``caregiving burden'' \162\ for 
those providing care to seniors or older family 
members.<SUP>163 164</SUP> When surveyed, more than half of caregivers 
reported that COVID-19 increased both the amount of caregiving 
responsibilities they had as well as the negative physical and mental 
impacts their caregiving responsibilities had on themselves.\165\
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    \160\ Maya Rossin-Slater et al., Local exposure to school 
shootings and youth antidepressant use, Proceedings of the National 
Academy of Sciences, vol 117(38), pages 23484-23489 (2020), https://www.pnas.org/content/117/38/23484; Ariel Marek Pihl and Gaetano 
Basso, Did California Paid Family Leave Impact Infant Health?, 
Journal of Policy Analysis and Management, https://onlinelibrary.wiley.com/doi/abs/10.1002/pam.2210.
    \161\ J.C. Jacobs, A. Laporte, C.H. Van Houtven, P.C. Coyte, 
Caregiving intensity and retirement status in Canada. Social Science 
& Medicine, 102, 74-82 (2014), https://www.sciencedirect.com/science/article/abs/pii/S0277953613006631.
    \162\ E. Lightfoot, R.P. Moone, Caregiving in times of 
uncertainty: Helping adult children of aging parents find support 
during the COVID-19 outbreak, Journal of Gerontological Social Work, 
63(6-7), 542-552 (2020), https://www.tandfonline.com/doi/abs/10.1080/01634372.2020.1769793.
    \163\ Note: ``Caregiving intensity'' is defined as the amount 
and type of care provided by informal caregivers; ``Caregiving 
burden'' is defined as the impacts on physical and mental health, 
and health-related quality of life of informal caregivers.
    \164\ SA Cohen, ZJ Kunicki, MM Drohan, ML Greaney, Exploring 
Changes in Caregiver Burden and Caregiving Intensity due to COVID-
19, Gerontology and Geriatric Medicine (January 2021), doi:10.1177/
2333721421999279.
    \165\ Id.
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    Treasury Response: Treasury agrees that these constitute impacts of 
the pandemic, and accordingly, under the final rule, creating, 
expanding, or financially supporting paid sick, medical, or family 
leave programs is an enumerated eligible use of funds to respond to the 
negative economic impacts of the pandemic.
    12. Health insurance.
    Public Comment: Several commenters recommended that uses of funds 
to expand access to health insurance be enumerated eligible uses; 
commenters believed that the heightened risk of illness or 
hospitalization due to COVID-19 had increased the negative economic 
impacts of lacking health insurance.
    Background: In 2019, prior to the pandemic, it was estimated that 
11 percent of nonelderly adults lacked health insurance.\166\ By mid-
2020, job loss had resulted in an estimated 3.3 million people losing 
their employer sponsored insurance, resulting in an additional 2 
million uninsured adults.\167\ Participation in Medicaid, the 
Children's Health Insurance Program (CHIP), and the Affordable Care Act 
(ACA) marketplace played an important role in minimizing the number of 
people who completely lost health insurance during the early phases of 
the pandemic; Medicaid and CHIP enrollment increased by 9 percent from 
February to September 2020 \168\ and 8.3 million people enrolled in 
insurance through the ACA marketplace.\169\
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    \166\ Jennifer Tolbert et al., Key Facts about the Uninsured 
Population, Kaiser Family Foundation (November 6, 2020), https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/.
    \167\ Joshua Aarons et. al., As the COVID-19 Recession Extended 
into the Summer of 2020, More Than 3 Million Adults Lost Employer-
Sponsored Health Insurance Coverage and 2 Million Became Uninsured, 
Urban Institute (September 18, 2020), https://www.urban.org/research/publication/covid-19-recession-extended-summer-2020-more-3-million-adults-lost-employer-sponsored-health-insurance-coverage-and-2-million-became-uninsured.
    \168\ Centers for Medicare and Medicaid Services, Medicaid and 
CHIP Enrollment Trends Snapshot through September 2020 (Washington: 
2021), available at https://www.medicaid.gov/sites/default/files/2021-01/september-medicaid-chip-enrollment-trend-snapshot.pdf.
    \169\ Centers for Medicare and Medicaid Services, 2021 Federal 
Health Insurance Exchange Weekly Enrollment Snapshot: Final Snapshot 
(January 12, 2021) available at https://www.cms.gov/newsroom/fact-sheets/2021-federal-health-insurance-exchange-weekly-enrollment-snapshot-final-snapshot.
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    Although the ACA, CHIP, and Medicaid have significantly reduced the 
number of uninsured Americans through the pandemic and the economic 
downturn, adequate coverage and affordability still remains an issue 
for many. In 2020, 21 percent of working-age adults were inadequately 
insured, meaning even if they had insurance, they incurred a 
significant amount of out-of-pocket costs.\170\ Additionally, 37 
percent of adults reported struggling with medical bills or medical 
debt and 71 percent of adults who did not purchase insurance cited 
affordability as the main factor.\171\
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    \170\ Sara R. Collins, Munira Z. Gunja, and Gabriella N. 
Aboulafia, U.S. Health Insurance Coverage in 2020: A Looming Crisis 
in Affordability (New York: Commonwealth Fund, 2020), available at 
https://www.commonwealthfund.org/publications/issue-briefs/2020/aug/looming-crisis-health-coverage-2020-biennial.
    \171\ Id.
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    Treasury Response: Treasury agrees that loss of health insurance, 
increased financial risk from lacking health insurance, or excessive 
out-of-pocket healthcare costs constitute negative economic impacts of 
the pandemic. Under the final rule, programs or services to expand 
access to health insurance coverage are an enumerated eligible use as 
assistance to households, for example, subsidies for health insurance 
premiums or expansion of a recipient's health insurance plan to cover 
additional employees who currently lack coverage.
    13. Services for the unbanked and underbanked.
    Public Comment: One commenter expressed support for the inclusion 
of services to increase banking access as an allowable expense under 
SLFRF. The commenter recommended that states be encouraged to offer 
opportunities for consumers to open safe and affordable accounts 
capable of receiving direct payments. The commenter emphasized that 
allowing unbanked and underbanked households to receive funds securely 
through no-fee, direct deposit will help connect or reconnect consumers 
to the mainstream financial system.
    Background: Banking inequities can make it difficult for unbanked 
or underbanked households to access housing, jobs, and other important 
economic opportunities. Being unbanked or underbanked can also make it 
challenging for households to apply for and receive financial 
assistance, including services like pandemic emergency housing 
assistance.
    Safe, affordable, and accessible financial services play a critical 
role in assisting households in the United States in managing income 
volatility and cash flow shortages.\172\ Currently, over 5 percent of 
families, or 7 million households are ``unbanked,'' meaning they do not 
have a bank account.\173\ Low-income households, non-white households, 
and households with individuals with disabilities were even more likely 
to be unbanked. In 2019, 16 percent of Native American households, 14 
percent of Black households, and 12 percent of Hispanic households were 
unbanked, compared to 2.5 percent of white households. Additionally,

[[Page 4369]]

underbanked households--those that have a bank account but rely on 
alternative financial services, such as money orders, payday loans, and 
check cashing services-- account for 16 percent of all households in 
the United States.\174\ As a result of the COVID-19 pandemic, new 
social distancing protocols have, in some instances, made it more 
difficult to perform financial transactions with paper instruments, 
like banknotes, coinage, paper checks, or money orders. Households 
constrained to these payment methods may face challenges receiving 
government assistance. Additionally, businesses have transitioned to 
cashless payments systems to promote contactless payments.\175\ As a 
result, unbanked individuals may face additional challenges conducting 
financial transactions.
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    \172\ Federal Deposit Insurance Corporation, FDIC National 
Survey of Unbanked and Underbanked Households (2015), https://www.fdic.gov/householdsurvey/2015/2015execsumm.pdf.
    \173\ Federal Deposit Insurance Corporation, How America Banks: 
Household Use of Banking and Financial Services 2019 FDIC Survey, 
https://www.fdic.gov/analysis/household-survey/2019report.pdf.
    \174\ Board of the Governors of the Federal Reserve System, 
Report on the Economic Well-Being of U.S. Households in 2018-May 
2019, https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-banking-and-credit.htm.
    \175\ Zaheer Allam, The Forceful Reevaluation of Cash-Based 
Transactions by COVID-19 and Its Opportunities to Transition to 
Cashless Systems in Digital Urban Networks. Surveying the Covid-19 
Pandemic and its Implications (2020): 107-117. doi:10.1016/B978-0-
12-824313-8.00008-5.
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    Treasury Response: Recognizing these challenges, Treasury is 
clarifying that recipients may use SLFRF funds to provide financial 
services that facilitate the delivery of federal, state, or local 
benefits (e.g., Child Tax Credit, Earned Income Tax Credit, tax 
refunds, or emergency housing or food assistance funds). The following 
includes a non-exhaustive list of uses to provide financial services to 
unbanked and underbanked households:
    <bullet> Provide low or no cost financial services, including in 
conjunction with administration of benefits, such as pre-paid debit 
cards, e.g., via Economic Impact Payment or General Purpose Reloadable 
pre-paid cards or for the development of public banking infrastructure 
that can support benefit delivery.
    <bullet> Provide transitional services to facilitate long-term 
access to banking and financial services.
    <bullet> Provide financial literacy programs and conduct community 
outreach and deploy engagement resources to increase awareness about 
low-cost, no-overdraft fee accounts, pilot new strategies and 
approaches that help overcome barriers to banking access and support 
the gathering and sharing of information in ways that improve equity, 
such as community meetings, partnerships with community-based 
organizations, online surveys, focus groups, human-centered design 
activities, and other community engagement activities.
Assistance to Unemployed and Underemployed Workers
    The interim final rule included assistance to unemployed workers as 
an enumerated eligible use, including ``services like job training to 
accelerate rehiring of unemployed workers.'' Treasury provided further 
guidance, based on recipient questions after the interim final rule, 
that eligible uses under this section also include ``other efforts to 
accelerate rehiring and thus reduce unemployment, such as childcare 
assistance, assistance with transportation to and from a jobsite or 
interview, and incentives for newly employed workers[,]'' as well as 
assistance to unemployed workers seeking to start small businesses. 
Finally, further guidance also provided that ``public jobs programs, 
subsidized employment, combined education and on-the-job training 
programs, or job training to accelerate rehiring or address negative 
economic or public health impacts experienced due to a worker's 
occupation or level of training'' are all enumerated eligible uses as 
assistance to unemployed or underemployed workers.
    The interim final rule defined eligible beneficiaries of assistance 
as ``individuals who want and are available for work, including those 
who have looked for work sometime in the past 12 months or who are 
employed part time but who want and are available for full-time work.'' 
This definition is based on definitions used by the Bureau of Labor 
Statistics to define individuals currently unemployed, as well as 
persons marginally attached to the labor force and working part-time 
for economic reasons.\176\ The latter two classifications are types of 
labor underutilization, or ``underemployed'' workers.\177\ Finally, the 
interim final rule specified that assistance to unemployed workers 
included both workers who lost their job during the pandemic and 
resulting recession and workers unemployed when the pandemic began who 
saw further deterioration of their economic prospects due to the 
pandemic.
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    \176\ Bureau of Labor Statistics, Labor Force Statistics from 
the Current Population Survey: Concepts and Definitions, https://www.bls.gov/cps/definitions.htm (last visited November 9, 2021).
    \177\ Id.
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    Public Comment: Commenters generally supported the inclusion of 
this enumerated eligible use. One commenter recommended including 
assistance for underemployed workers who took jobs due to the pandemic 
that did not fully utilize their skillset or did not provide the hours, 
wages, or job quality desired. Treasury has also received recipient 
questions on whether job fairs or grants to businesses to hire 
underserved workers are eligible uses under this category. Another 
commenter recommended flexibility in eligible workforce development 
programs, arguing that rural areas may face particular challenges.
    Treasury Response: Treasury is maintaining this eligible use in the 
final rule, including the enumerated eligible services in the interim 
final rule and subsequent guidance. Treasury is also confirming that 
job fairs or grants to businesses to hire underserved workers are 
eligible uses under this section.
    Treasury is also enumerating that job and workforce training 
centers are eligible capital expenditures, so long as they adhere to 
the standards and presumptions detailed in the section Capital 
Expenditures in General Provisions: Other.
    The final rule maintains the definition of eligible beneficiaries, 
which is aligned with the Bureau of Labor Statistics' definitions of 
unemployed workers and other labor underutilization, using a common, 
widely known definition that incorporates a broad group of individuals 
both unemployed or whose skills are otherwise underutilized in the 
labor market.
    In addition, recognizing that the pandemic has generated broad 
workforce disruption, in the final rule, Treasury is making clear that 
recipients may provide job training or other enumerated types of 
assistance to individuals that are currently employed but are seeking 
to move to a job that provides better opportunities for economic 
advancement, such as higher wages or more opportunities for career 
advancement.
Recipient Unemployment Insurance Trust Funds and Related Expenses
    Under the interim final rule, a recipient may use funds to make 
deposits into its account of the Unemployment Trust Fund established 
under section 904 of the Social Security Act (42 U.S.C. 1104) up to the 
level needed to restore the pre-pandemic balance of such account as of 
January 27, 2020 or to pay back advances received under Title XII of 
the Social Security Act (42 U.S.C. 1321) for the payment of benefits 
between January 27, 2020 and May 17, 2021. These costs support the 
solvency of the unemployment insurance system and, ultimately, 
unemployment insurance benefits provided to unemployed

[[Page 4370]]

workers during the pandemic.\178\ The interim final rule also posed the 
question of what, if any, conditions should be considered to ensure 
that funds used under this eligible use category repair economic 
impacts of the pandemic and strengthen unemployment insurance systems.
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    \178\ Note that, while the economic harm being addressed accrued 
before March 3, 2021, the cost incurred to address the harm occurs 
after March 3, 2021 and provides assistance to unemployed workers, 
an eligible use of SLFRF funds.
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    Public Comment: Inclusion as an Eligible Use and Conditions: 
Commenters expressed mixed perspectives on this eligible use category. 
Some commenters supported its inclusion, arguing that unemployment 
insurance systems have faced significant costs to support unemployed 
workers during the pandemic and that this constitutes a negative 
economic impact that SLFRF funds should be able to address. Other 
commenters opposed this eligible use category, arguing that funds used 
under this category may not ultimately support unemployed workers. Some 
commenters noted that unemployment insurance taxes on businesses 
automatically increase when trust fund balances are low and suggested 
that permitting the deposit of funds into unemployment insurance trust 
funds prevents a tax increase on businesses, some of which may not have 
faced negative economic impacts from the pandemic, rather than 
providing assistance to unemployed workers. Other comments suggested 
that deposits are better thought of as savings for future needs than 
assistance to unemployed workers in the near term.
    Responding to the interim final rule's question, several commenters 
suggested that, if Treasury maintains this eligible use, the final rule 
should require detailed reporting on funds used under this category or 
place conditions on this category to increase the likelihood that funds 
ultimately support unemployed workers. For example, some commenters 
suggested that recipients that deposit SLFRF funds into their trust 
fund should be barred from cutting unemployment insurance benefits for 
workers during the period of performance or from erecting new barriers 
to accessing benefits (e.g., through the application process and 
ongoing requirements to receive benefits). One commenter, noting that 
unemployment insurance benefits often provide low rates of wage 
replacement and do not cover some types of unemployed workers, argued 
that recipients should not be permitted to deposit funds into the trust 
fund unless the recipient concurrently expands benefits. Finally, one 
commenter suggested a cap on the amount of funds that can be used for 
this purpose.
    Treasury Response: Inclusion as an Eligible Use and Conditions: In 
the final rule, Treasury is maintaining the inclusion of this eligible 
use category. Because unemployment insurance trust funds directly fund 
benefits to unemployed workers, maintaining the solvency of the trust 
fund is critical to the continued provision of assistance to unemployed 
workers. Further, funds deposited into the trust fund must be used as 
assistance to unemployed workers, an eligible use of SLFRF funds. 
Finally, while, in the absence of the SLFRF, trust fund deposits would 
likely be funded through increases on employer payroll taxes, the 
eligibility of uses of SLFRF funds does not depend on how obligations 
would otherwise be satisfied if the SLFRF were not available for this 
use.
    While deposits to unemployment insurance trust funds generally 
serve as assistance to unemployed workers, recipients that make 
deposits but also cut unemployment insurance benefits to workers 
substantially decrease the likelihood that the deposited funds will 
assist unemployed workers. In other words, SLFRF funds deposited into 
an unemployment insurance trust fund generally serve as assistance to 
unemployed workers, unless recipients take policy actions that 
substantially decrease the extent to which SLFRF funds would flow to 
unemployed workers. As such, through December 31, 2024, recipients that 
deposit SLFRF funds into an unemployment insurance trust fund or use 
SLFRF funds to repay principal on Title XII advances, may not take 
action to reduce benefits available to unemployed workers by changing 
the computation method governing regular unemployment compensation in a 
way that results in a reduction of average weekly benefit amounts or 
the number of weeks of benefits payable (i.e., the maximum benefit 
entitlement).
    Finally, until the final rule becomes effective on April 1, 2022, 
the interim final rule remains binding and effective.\179\ These 
requirements were not in effect under the interim final rule and do not 
apply to funds used (i.e., obligated or expended) under the interim 
final rule while it is in effect. In addition, recognizing that some 
recipients have taken significant steps toward making a trust fund 
deposit or repaying principal on Title XII advances under the interim 
final rule, such as the legislative appropriation of funds for this 
purpose, even if a formal obligation has not occurred, Treasury will 
exercise enforcement discretion to not pursue violations of this final 
rule provision (i.e., the requirement not to reduce benefits) for 
recipients that have appropriated funds for this purpose prior to the 
date of adoption of the final rule consistent with the laws and 
procedures in their jurisdiction. Recipients should refer to Treasury's 
Statement Regarding Compliance with the Coronavirus State and Local 
Fiscal Recovery Funds Interim Final Rule and Final Rule, which provides 
additional detail on these issues.
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    \179\ See, e.g., U.S. Department of the Treasury, More 
Information on the Conclusion of the Public Comment Period and the 
Interim Final Rule on the Coronavirus State and Local Fiscal 
Recovery Funds, https://home.treasury.gov/system/files/136/IFR-Explainer.pdf.
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    Public Comment and Treasury Response: Technical Corrections and 
Amendments: Following the interim final rule, Treasury received 
recipient questions on whether paying interest on advances received 
under Title XII of the Social Security Act (42 U.S.C. 1321) is an 
eligible use of SLFRF funds; Treasury is clarifying that such use is 
permissible, consistent with Treasury's treatment of the eligibility of 
interest on Title XII advances under the Coronavirus Relief Fund.
    Treasury is further clarifying that recipients may only use SLFRF 
funds for contributions to unemployment insurance trust funds and 
repayment of the principal amount due on advances received under Title 
XII of the Social Security Act up to an amount equal to (i) the 
difference between the balance in the recipient's unemployment 
insurance trust fund as of January 27, 2020 and the balance of such 
account as of May 17, 2021, plus (ii) the principal amount outstanding 
as of May 17, 2021 on any advances received under Title XII of the 
Social Security Act between January 27, 2020 and May 17, 2021. Further, 
recipients may use SLFRF funds for the payment of any interest due on 
such Title XII advances. In other words, excluding interest due on 
Title XII advances, the magnitude of the decrease of the balance in the 
unemployment insurance trust fund plus the principal outstanding on any 
Title XII borrowings made from the beginning of the public health 
emergency to the date of publication of the SLFRF interim final rule 
sets a cap on the amount of SLFRF funds a recipient may use for trust 
fund contributions and repayment of principal on Title XII advances. 
Further, a recipient that deposits SLFRF funds into its unemployment 
insurance trust fund to fully restore the pre-pandemic balance may not 
draw down that

[[Page 4371]]

balance and deposit more SLFRF funds, back up to the pre-pandemic 
balance.
Enumerated Eligible Uses for Disproportionately Impacted Households
Background
    The COVID-19 pandemic has had disproportionally negative impacts on 
many households and communities that were already experiencing 
inequality related to race, gender, age, or income before the pandemic. 
People of color, low-income workers, and women disproportionately lost 
their jobs during the COVID-19 pandemic and experienced 
disproportionate rates of negative health outcomes.<SUP>180 181</SUP>
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    \180\ U.S. Department of Health and Human Services, COVID-19 and 
Economic Opportunity: Inequities in the Employment Crisis, April 
2021. Retrieved from https://aspe.hhs.gov/sites/default/files/migrated_legacy_files//199901/covid-economic-equity-brief.pdf.
    \181\ Adelle Simmons et al., Health disparities by race and 
ethnicity during the COVID-19 pandemic: Current evidence and policy 
approaches. U.S. Department of Health and Human Services https://aspe.hhs.gov/sites/default/files/migrated_legacy_files//199516/covid-equity-issue-brief.pdf.
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    These disproportionate negative impacts experienced by systemically 
underserved communities are not novel to the COVID-19 pandemic and the 
economic downturn. Research shows that historically underserved 
communities that are experiencing economic and social disparities 
typically experience disproportionate impacts of economic downturns and 
natural disasters.\182\ This pattern held true for the effects of 
COVID-19 and the economic downturn: Historically undeserved groups 
experienced amplified negative impacts, further widening 
inequality.\183\
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    \182\ Perry, Brea L., Brian Aronson, and Bernice A. Pescosolido, 
Pandemic precarity: COVID-19 is exposing and exacerbating 
inequalities in the American heartland, National Academy of Sciences 
(Febuary 2021), https://www.pnas.org/content/118/8/e2020685118.
    \183\ Id.
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    Many communities facing systemic barriers had not yet recovered 
from the impact of the Great Recession before experiencing the impacts 
of COVID-19 and the economic downturn. For example, in 2009, at the end 
of the Great Recession, households without a high school diploma had an 
average annual income of $32,300 (measured in 2018 dollars). By 2018, 
nine years into the economic recovery, those same households saw their 
average income increase by $600. During that same time period, 
households with a bachelor's degree saw an increase in their average 
household income of $6,100 (measured in 2018 dollars).\184\
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    \184\ Jesse Bennet & Rakesh Kochhar, Two Recessions, Two 
Recoveries, Pew Research Center (December 13, 2019), https://www.pewresearch.org/social-trends/2019/12/13/two-recessions-two-recoveries-2/.
---------------------------------------------------------------------------

    The impact pre-existing inequalities have on a household or 
community's ability to recover is intersectional. Research shows that 
pre-existing racial and gender disparities exacerbated the 
disproportionate economic and health impact COVID-19 and the economic 
downturn had on workers of color, and specifically, women of 
color.\185\ Another study found that during the first six months of the 
pandemic counties that were both high-poverty and majority non-white 
experienced COVID-19 infection rates eight times higher than high-
poverty, majority white counties.\186\ Many residents in these 
communities are still coping with the negative health and economic 
impacts.
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    \185\ Darrick Hamilton et al., Building an Equitable Recovery: 
The role of Race, Labor Markets, and Education, The New School's 
Institute on Race and Political Economy (February 2021).
    \186\ Adhikari S, Pantaleo NP, Feldman JM, Ogedegbe O, Thorpe L, 
Troxel AB. Assessment of Community-Level Disparities in Coronavirus 
Disease 2019 (COVID-19) Infections and Deaths in Large US 
Metropolitan Areas. JAMA Netw Open. 2020;3(7):e2016938. doi:10.1001/
jamanetworkopen.2020.16938.
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Summary of the Interim Final Rule and Final Rule Structure
    As described previously, the interim final rule provided a broader 
list of enumerated eligible uses to respond to the pandemic in 
disproportionately impacted communities, in recognition that pre-
existing health, economic, and social disparities contributed to 
disproportionate pandemic impacts in certain communities and that 
addressing the root causes of those disparities constitutes responding 
to the public health and negative economic impacts of the pandemic. The 
interim final rule described eligible uses in disproportionately 
impacted communities in four categories, spread across public health 
and negative economic impacts: (1) Addressing disparities in public 
health outcomes, (2) building stronger communities through investments 
in housing and neighborhoods, (3) addressing educational disparities, 
and (4) promoting healthy childhood environments. As described above, 
Treasury has moved eligible uses related to community violence 
intervention, assistance accessing or applying to public benefits and 
services, affordable housing development, healthy childhood 
environments, and addressing lost instructional time in K-12 schools 
into the category ``assistance to impacted households,'' recognizing 
that these pandemic impacts were widely shared across the country.
    This section discusses enumerated eligible uses to address health 
disparities, to build stronger communities through investments in 
neighborhoods, to address educational disparities, to provide rental 
assistance vouchers or assistance relocating to areas of greater 
economic opportunity, and additional eligible uses to respond to 
negative economic impacts in disproportionately impacted communities. 
While many of these services impact both health and economic outcomes, 
Treasury has consolidated them into a single section for simplicity and 
clarity and to reflect the intertwined nature of these issues.
    As a reminder, recipients can presume these uses are eligible when 
provided in a QCT, to families and individuals living in QCTs, by 
Tribal or territorial governments, or to low-income households or 
communities. As provided in section Standards: Designating Other 
Disproportionately Impacted Classes, recipients can also provide these 
services to other populations, households, or geographic areas 
disproportionately impacted by the pandemic. Recipients may also 
identify additional disproportionate impacts of the pandemic and design 
an appropriate response to address that harm. For details on 
eligibility standards and presumed eligible populations, see section 
General Provisions: Structure and Standards.
Enumerated Eligible Uses for Disproportionately Impacted Households
    1. Addressing health disparities.
    Public Comment: General: In general, commenters supported eligible 
uses to address health disparities and support health equity; several 
commenters highlighted the disparities faced by communities of color 
and low-income populations, as well as the importance of community 
engagement in developing effective programs to serve disproportionately 
impacted communities. Many commenters recommended additional enumerated 
eligible uses to address health disparities; these are discussed 
further below in this section.
    Treasury Response: In line with commenters' recommendations, the 
final rule maintains several enumerated eligible uses to address health 
disparities, specifically:
    a. Community health workers. Treasury received few comments on 
community health workers, though one

[[Page 4372]]

requested further clarification on their role.\187\ Treasury is 
maintaining this eligible use in the final rule.
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    \187\ See, e.g., Centers for Disease Control and Prevention, 
Community Health Worker (CHW) Toolkit, https://www.cdc.gov/dhdsp/pubs/toolkits/chw-toolkit.htm (last visited November 9, 2021).
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    b. Remediation of lead paint or other lead hazards. The interim 
final rule included remediation of lead paint or other lead hazards as 
an enumerated eligible use to address health disparities.
    Public Comment: Treasury received several comments asking for 
clarification on the eligibility of a particular use that would 
indirectly address lead pollution. For example, a commenter requested 
the ability to fund remedial actions, such as filtration and plumbing 
procedures to help address lead pollution. One commenter requested that 
private wells be eligible for funding to address contamination with 
substances such as lead. Other commenters requested that Treasury allow 
replacement of lead pipes as an eligible use of funds.
    Treasury Response: Recipients may make a broad range of water 
infrastructure investments under section 602(c)(1)(d) and 603(c)(1)(d), 
which can include lead service line replacement and other activities to 
identify and remediate lead in water. These uses are discussed in 
greater detail in section Water and Sewer Infrastructure of this 
Supplemental Information.
    Treasury has further determined that several of the services 
identified by commenters are appropriate responses to address health 
disparities in disproportionately impacted households. These services 
were eligible under the interim final rule and continue to be so under 
the final rule. These services include remediation to address lead-
based public health risk factors, outside of lead in water, including 
evaluation and remediation of lead paint, dust, or soil hazards; 
testing for blood lead levels; public outreach and education; and 
emergency protection measures, like bottled water and water filters, in 
areas with an action level exceedance for lead in water in accordance 
with the Environmental Protection Agency's Lead and Copper Rule.\188\
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    \188\ Environmental Protection Agency, 40 CFR 141.80(c)(1), 
https://www.ecfr.gov/current/title-40/chapter-I/subchapter-D/part-141/subpart-I/section-141.80.
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    Further, Treasury had determined that certain capital expenditures, 
including improvements to existing facilities to remediate lead 
contaminants (e.g., removal of lead paint), are eligible responses, 
although this does not include construction of new facilities for the 
purpose of lead remediation. Recipients should make sure that all 
capital expenditures adhere to the standards and presumptions detailed 
in section Capital Expenditures in General Provisions: Other.
    c. Medical facilities. Treasury received a few comments from 
recipients seeking to use SLFRF funds to build new medical facilities, 
such as hospitals or public health clinics, to serve disproportionately 
impacted communities. Given the central role of access to high-quality 
medical care in reducing health disparities and addressing the root 
causes that led to disproportionate impact COVID-19 health impacts in 
certain communities, the final rule recognizes that medical equipment 
and facilities designed to address disparities in public health 
outcomes are eligible capital expenditures. This includes primary care 
clinics, hospitals, or integrations of health services into other 
settings. Recipients should make sure that all capital expenditures 
adhere to the standards and presumptions detailed in section Capital 
Expenditures in General Provisions: Other.
    2. Housing vouchers and assistance relocating. In addition to other 
housing services, the interim final rule permitted a variety of rental 
assistance approaches to support low-income households in securing 
stable, long-term housing, including housing vouchers, residential 
counseling, or housing navigation assistance to facilitate household 
moves to neighborhoods with high levels of economic opportunity and 
mobility for low-income residents. Examples could include SLFRF-funded 
analogues to Section 8 Housing Choice vouchers; other kinds of rent 
subsidies, including shallow subsidies; and programs to help residents 
move to areas with higher levels of economic mobility.\189\ Treasury 
did not receive public comments on these enumerated eligible uses.
---------------------------------------------------------------------------

    \189\ See, e.g., Opportunity Insights, Creating Moves To 
Opportunity (August 2019), https://opportunityinsights.org/policy/cmto/.
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    Treasury Response: Treasury maintains the eligibility of vouchers 
and relocation assistance in the final rule.
    3. Building strong, healthy communities through investments in 
neighborhoods. While the interim final rule included a category of 
enumerated eligible uses for ``building stronger communities through 
investments in housing and neighborhoods,'' the examples of services 
provided generally focused on housing uses. In response to questions 
following release of the interim final rule, Treasury issued further 
guidance clarifying that ``investments in parks, public plazas, and 
other public outdoor recreation spaces may be responsive to the needs 
of disproportionately impacted communities by promoting healthier 
living environments.''
    Public Comment: General: A significant theme across many public 
comments was the importance of neighborhood environment to health and 
economic outcomes and the potential connections between residence in an 
underserved neighborhood and disproportionate impacts from the 
pandemic. Many commenters highlighted the connection between 
neighborhoods and health outcomes, including citing public health 
research linking neighborhood traits to health outcomes. For example, 
the CDC states that ``neighborhoods people live in have a major impact 
on their health and well-being.'' \190\ As such, CDC identifies 
``neighborhoods and built environment'' as one of five key social 
determinants of health \191\ and includes ``creat[ing] neighborhoods 
and environments that promote health and safety'' as one of the 
agency's goals for social determinants of health outcomes.
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    \190\ U.S. Department of Health and Human Services, Neighborhood 
and Built Environment, https://health.gov/healthypeople/objectives-and-data/browse-objectives/neighborhood-and-built-environment#cit1 
(last visited November 9, 2021).
    \191\ Social determinants of health are ``the conditions in the 
places where people live, learn, work, and play that affect a wide 
range of health risks and outcomes.'' Centers for Disease Control 
and Prevention, About Social Determinants of Health (SDOH), https://www.cdc.gov/socialdeterminants/about.html (last visited November 9, 
2021).
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    a. Neighborhood features that promote improved health and safety 
outcomes.
    Public Comment: Commenters argued that neighborhoods impact 
physical health outcomes in several ways. First, some commenters 
reasoned that the physical environment and amenities in a community 
\192\ influence a person's level of physical activity, with features 
like parks, recreation facilities, and safe sidewalks promoting 
increased physical activity that improves health outcomes. Conversely, 
commenters argued that a lack of these features in a neighborhood could 
dampen physical activity and contribute to health conditions like 
obesity that are risk factors for more severe COVID-19 health outcomes.
---------------------------------------------------------------------------

    \192\ In public health, this is referred to as ``built 
environment,'' or the man-made physical aspects of a community 
(e.g., homes, buildings, streets, open spaces, and infrastructure).
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    Second, some commenters also suggested that access to healthy food 
in a neighborhood impacts health outcomes. These commenters reasoned

[[Page 4373]]

that lacking adequate access to affordable, healthy food or living in a 
``food desert'' may contribute to disparities in diet that influence 
health outcomes, including contributing to pre-existing conditions that 
increased risk for severe COVID-19 outcomes. These commenters cited 
public health research finding ``clear evidence for disparities in food 
access in the United States by income and race.'' \193\
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    \193\ J Beaulac, E Kristjansson, S Cummins, A systematic review 
of food deserts, 1966-2007, Prev Chronic Dis 2009;6(3):A105, http://www.cdc.gov/pcd/issues/2009/jul/08_0163.htm.
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    Some commenters also suggested that neighborhood environment is 
connected to other public health outcomes, like mental health and 
public safety. For example, some research suggests that living in 
neighborhoods with green space and tree cover correlates with improved 
mental health outcomes.\194\ Finally, some commenters argued that 
activities like installing streetlights, greening or cleanup of public 
spaces or land, and other efforts to revitalize public spaces would 
support improved public safety.<SUP>195 196</SUP>
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    \194\ See, e.g., Yijun Zhang et al. The Association between 
Green Space and Adolescents' Mental Well-Being: A Systematic Review. 
International journal of environmental research and public health 
vol. 17,18 6640 (Sep. 11 2020), doi:10.3390/ijerph17186640; EC 
South, BC Hohl, MC Kondo, JM MacDonald, CC Branas, Effect of 
Greening Vacant Land on Mental Health of Community-Dwelling Adults: 
A Cluster Randomized Trial, JAMA Netw Open. 2018;1(3):e180298 
(2018), available at: doi:10.1001/jamanetworkopen.2018.0298.
    \195\ See, e.g., Yanqing Xu, Cong Fu, Eugene Kennedy, Shanhe 
Jiang, Samuel Owusu-Agyemang, The impact of street lights on 
spatial-temporal patterns of crime in Detroit, Michigan, Cities, 
Volume 79, Pages 45-52, ISSN 0264-2751 (2018), https://doi.org/10.1016/j.cities.2018.02.021.
    \196\ A. Chalfin, B. Hansen, J. Lerner et al., Reducing Crime 
Through Environmental Design: Evidence from a Randomized Experiment 
of Street Lighting in New York City, Journal of Quantitative 
Criminology (2021), https://doi.org/10.1007/s10940-020-09490-6.
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    These commenters recommended that Treasury include as an enumerated 
eligible use in disproportionately impacted communities projects to 
develop neighborhood features that promote improved health and safety 
outcomes, such as parks, green spaces, recreational facilities, 
sidewalks, pedestrian safety features like crosswalks, projects that 
increase access to healthy foods, streetlights, neighborhood cleanup, 
and other projects to revitalize public spaces.
    Background: Investments in neighborhood features, including parks, 
recreation facilities, sidewalks, and healthy food access, can work to 
improve physical and mental health outcomes. Allowing people access to 
nature, including parks, has been connected to decreased levels of 
mortality and illness and increased well-being.\197\ Urban park use 
during the COVID-19 pandemic may have declined among lower-income 
individuals.\198\ Encouraging physical activity can also play a role in 
health outcomes, as a sedentary lifestyle is a risk factor for chronic 
diseases and more severe COVID-19 outcomes.\199\ Parks, recreation 
facilities, and sidewalks can promote healthier living environments by 
allowing for safe and socially distanced recreation during the COVID-19 
pandemic.
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    \197\ See, e.g., American Public Health Association, Improving 
Health and Wellness through Access to Nature (November 5, 2013), 
https://www.apha.org/policies-and-advocacy/public-health-policy-statements/policy-database/2014/07/08/09/18/improving-health-and-wellness-through-access-to-nature.
    \198\ LR Larson et al., Urban Park Use During the COVID-19 
Pandemic: Are Socially Vulnerable Communities Disproportionately 
Impacted?, Front. Sustain. Cities 3:710243 (2021), https://doi.org/10.3389/frsc.2021.710243.
    \199\ JP Despr[eacute]s, Severe COVID-19 outcomes--the role of 
physical activity. Nat Rev Endocrinol 17, 451-452 (2021). https://doi.org/10.1038/s41574-021-00521-1.
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    Additionally, food insecurity rates, which are higher among lower-
income households and households of color, doubled among all households 
and tripled among households with children during the onset of COVID-19 
from February 2020 to May 2020.\200\ Improving healthy food access 
supports public health, particularly among lower-income households and 
households of color that face disproportionate outcomes.
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    \200\ Caroline George and Adie Tomer, Beyond `food deserts': 
America needs a new approach to mapping food, Brookings Institution 
(August 17, 2021), https://www.brookings.edu/research/beyond-food-deserts-america-needs-a-new-approach-to-mapping-food-insecurity/.
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    Treasury Response: Treasury recognizes the connection between 
neighborhood built environment and physical health outcomes as 
discussed in the research and analysis provided by commenters, 
including risk factors that may have contributed to disproportionate 
COVID-19 health impacts in low-income communities. The final rule also 
recognizes that the public health impacts of the pandemic are broader 
than just the COVID-19 disease itself and include substantial impacts 
on mental health and public safety challenges like rates of violent 
crime, which are correlated with a neighborhood's built environment and 
features. As such, neighborhood features that promote improved health 
and safety outcomes respond to the pre-existing disparities that 
contributed to COVID-19's disproportionate impacts on low-income 
communities.
    The final rule includes enumerated eligible uses in 
disproportionately impacted communities for developing neighborhood 
features that promote improved health and safety outcomes, such as 
parks, green spaces, recreational facilities, sidewalks, pedestrian 
safety features like crosswalks,\201\ projects that increase access to 
healthy foods, streetlights, neighborhood cleanup, and other projects 
to revitalize public spaces. Recipients seeking to use funds for 
capital expenditures should refer to the section Capital Expenditures 
in General Provisions: Other, which describes additional eligibility 
standards that apply to uses of funds for capital expenditures.
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    \201\ However, Treasury cautions recipients that general 
infrastructure development, including street or road construction, 
remains a generally ineligible use of funds under the final rule. 
Sidewalks and pedestrian safety should be the predominant component 
of uses of funds in this category. While projects may include 
ancillary construction needed to execute the predominant component, 
a project that predominantly involves street construction or repair 
to benefit vehicular traffic would be ineligible.
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    b. Vacant or abandoned properties. As discussed above, the interim 
final rule included enumerated eligible uses for building stronger 
communities through investments in housing and neighborhoods in 
disproportionately impacted communities. The interim final rule also 
posed a question of whether other potential uses in this category, 
specifically ``rehabilitation of blighted properties or demolition of 
abandoned or vacant properties,'' address the public health or economic 
impacts of the pandemic.
    Public Comment: Several commenters argued that programs or services 
to address vacant or abandoned property would respond to the public 
health and negative economic impacts of the pandemic in 
disproportionately impacted communities. Some commenters cited research 
suggesting that living near such property is correlated with worse 
physical health and mental health outcomes, noted that such properties 
pose an environmental hazard, or argued that such properties present a 
barrier to economic recovery. These commenters suggested that 
renovation or demolition of vacant or abandoned property could benefit 
community health and raise property values. Other commenters 
recommended that Treasury include an enumerated eligible use for the 
operation of land banks that redevelop or renew vacant properties and 
land.
    Treasury Response: As noted throughout the final rule, the pandemic 
underscored the importance of safe, affordable housing and healthy

[[Page 4374]]

neighborhood environments to public health and economic outcomes. 
Treasury agrees with commenters that high rates of vacant or abandoned 
properties in a neighborhood may exacerbate public health disparities, 
for example through environmental contaminants that contribute to poor 
health outcomes or by contributing to higher rates of crime. As such, 
certain services for vacant or abandoned properties are eligible to 
address the public health and negative economic impacts of the pandemic 
on disproportionately impacted households or communities. Eligible 
activities include:
    <bullet> Rehabilitation, renovation, maintenance, or costs to 
secure vacant or abandoned properties to reduce their negative impact
    <bullet> Costs associated with acquiring and securing legal title 
of vacant or abandoned properties and other costs to position the 
property for current or future productive use
    <bullet> Removal and remediation of environmental contaminants or 
hazards from vacant or abandoned properties, when conducted in 
compliance with applicable environmental laws or regulations
    <bullet> Demolition or deconstruction of vacant or abandoned 
buildings (including residential, commercial, or industrial buildings) 
paired with greening or other lot improvement as part of a strategy for 
neighborhood revitalization
    <bullet> Greening or cleanup of vacant lots, as well as other 
efforts to make vacant lots safer for the surrounding community
    <bullet> Conversion of vacant or abandoned properties to affordable 
housing
    <bullet> Inspection fees and other administrative costs incurred to 
ensure compliance with applicable environmental laws and regulations 
for demolition, greening, or other remediation activities
    Vacant or abandoned properties are generally those that have been 
unoccupied for an extended period of time or have no active owner.\202\ 
Such properties may be in significant disrepair (e.g., major structural 
defects; lack of weather tight conditions; or lack of useable plumbing, 
kitchen facilities, electricity, or heating infrastructure (not to 
include utilities currently out of service or disconnected but able to 
be reconnected and used)), or may be declared unfit for inhabitants by 
a government authority.
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    \202\ A state or locality may use its existing classifications 
of what is considered vacant or abandoned property under state law 
and local ordinances, as well as any corresponding processes for 
demolition, for these eligible uses. A recipient without a 
definition of vacant or abandoned property may refer to definitions 
used in the Department of Housing and Urban Development's 
Neighborhood Stabilization Program (available at the citations 
below); however, recipients should be aware that other federal, 
state, or local requirements may apply such as compliance with the 
Uniform Relocation Act (see U.S. Department of Housing and Urban 
Development, Real Estate Acquisition and Relocation Overview in HUD 
Programs, https://www.hudexchange.info/programs/relocation/overview/#overview-of-the-ura (last visited November 9, 2021) and other state 
and local requirements like condemnation and code enforcement. U.S. 
Department of Housing and Urban Development, What is the definition 
of vacant properties as referenced in NSP Eligible Use E--Redevelop 
Demolished or Vacant Properties? (October 2012), https://www.hudexchange.info/faqs/programs/neighborhood-stabilization-program-nsp/redevelopment/what-is-the-definition-of-vacant-properties-as-referenced-in-nsp-eligible/. U.S. Department of 
Housing and Urban Development, What are the definitions of abandoned 
and foreclosed? (October 2012), https://www.hudexchange.info/faqs/programs/neighborhood-stabilization-program-nsp/program-requirements/eligible-activitiesuses/what-are-the-definitions-of-abandoned-and-foreclosed/.
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    As noted above, demolition and greening (or other structure or lot 
remediation) of vacant or abandoned properties, including residential, 
commercial, or industrial buildings, is an eligible use of funds. 
Treasury encourages recipients to undertake these activities as part of 
a strategy for neighborhood revitalization and to consider how the 
cleared property will be used to benefit the disproportionately 
impacted community. Activities under this eligible use should benefit 
current residents and businesses, who experienced the pandemic's impact 
on the community.
    Treasury encourages recipients to be aware of potential impacts of 
demolition of vacant or abandoned residential properties. Demolition 
activities that exacerbate the pandemic's impact on housing insecurity 
or lack of affordable housing are not eligible uses of funds. This risk 
is generally more acute in jurisdictions with low or reasonable vacancy 
rates and less acute in jurisdictions with high or hyper-vacancy.\203\
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    \203\ For analysis of vacancy rates considered low or high, see, 
e.g., page 12 of Alan Mallach, The Empty House Next Door, Lincoln 
Institute (May 2018), https://www.lincolninst.edu/publications/
policy-focus-reports/empty-house-next-
door#:~:text=%E2%80%9CAlan%20Mallach%20is%20the%20sage,through%20data
%20and%20model%20 practices. Recipients may determine the 
appropriate geographic unit for which to analyze vacancy rates 
(e.g., county, census tract) based on their circumstances. As 
needed, recipients may refer to the Current Population Survey/
Housing Vacancy Survey data series on Housing Vacancies and 
Homeownership as one data source to assess vacancy rates. See 
https://www.census.gov/housing/hvs/index.html. Other data sources 
include the American Community Survey five-year estimates, for 
smaller geographic areas, or tabulations by the Department of 
Housing and Urban Development based on United States Postal Service 
Vacancy Data. See, respectively, https://data.census.gov/cedsci/table?q=DP04&tid=ACSDP5Y2019.DP04&hidePreview=true or https://www.huduser.gov/portal/datasets/usps.html.
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    Treasury presumes that demolition of vacant or abandoned 
residential properties that results in a net reduction in occupiable 
housing units for low- and moderate-income individuals in an area where 
the availability of such housing is lower than the need for such 
housing would exacerbate the impacts of the pandemic on 
disproportionately impacted communities and that use of SLFRF funds for 
such activities would therefore be ineligible. This includes activities 
that convert occupiable housing units for low- and moderate-income 
individuals into housing units unaffordable to current residents in the 
community. Recipients may assess whether units are ``occupiable'' and 
what the housing need is for a given area taking into account vacancy 
rates (as described above), local housing market conditions (including 
conditions for different types of housing like multi-family or single-
family), and applicable law and housing codes as to what units are 
occupiable. Recipients should also take all reasonable steps to 
minimize the displacement of persons due to activities under this 
eligible use category, especially the displacement of low-income 
households or longtime residents.
    Recipients engaging in these activities and other construction 
activities with SLFRF funds should be mindful of the provisions of the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970, as amended, 42 U.S.C. 4601, and the Department of 
Transportation's implementing regulations, 49 CFR part 24, that apply 
to projects funded with federal financial assistance, such as SLFRF 
funds. Recipients should also be aware of federal, state, and local 
laws and regulations, outside of SLFRF program requirements, that apply 
to this activity. Recipients must comply with the applicable 
requirements of the Uniform Guidance regarding procurement, 
contracting, and conflicts of interest and must follow the applicable 
laws and regulations in their jurisdictions. Recipients must also 
comply with all federal, state, and local public health and 
environmental laws or regulations that apply to activities under this 
eligible use category,\204\ for example, requirements around the

[[Page 4375]]

handling and disposal of asbestos-containing materials, lead paint, and 
other harmful materials may apply, as well as environmental standards 
for any backfill materials used at demolition sites. Treasury 
encourages recipients to consult and apply best practices from the 
Environmental Protection Agency as well.
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    \204\ See U.S. Environmental Protection Agency, Large-Scale 
Residential Demolition, https://www.epa.gov/large-scale-residential-demolition (last visited November 9, 2021) for a primer on 
requirements that may apply.
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    Recipients must evaluate each subrecipient's risk of noncompliance 
with federal statutes, regulations, and the terms and conditions of the 
subaward related to safely and properly conducting activities under 
this eligible use. This may include checking for any past violations 
recorded by state or local environmental, workplace safety, licensing, 
and procurement agencies, as well as regular reviews for suspensions, 
debarments, or stop work orders. Recipients must establish rigorous 
oversight and internal controls processes to monitor compliance with 
any applicable requirements, including compliance by subrecipients.
    4. Addressing educational disparities. The interim final rule 
included an enumerated eligible use for addressing educational 
disparities in disproportionately impacted communities and outlined 
some enumerated eligible services under this use. These enumerated uses 
included early learning services, assistance to high-poverty school 
districts to advance equitable funding across districts and 
geographies, and educational and evidence-based services to address the 
academic, social, emotional, and mental health needs of students. 
Addressing the many dimensions of resource equity--including equitable 
and adequate school funding; access to a well-rounded education; well-
prepared, effective, and diverse educators and staff; and integrated 
support services--can also begin to mitigate the impact of COVID-19 on 
schools and students and can close long-standing gaps in educational 
opportunity. As discussed above, in the final rule, early learning 
services and addressing the impacts of lost instructional time for K-12 
students are enumerated eligible uses for impacted communities, not 
just disproportionately impacted communities.
    Public Comment: Treasury received some comments in this category. 
Generally, commenters expressed agreement with the elements of the 
interim final rule regarding use of funds for addressing educational 
disparities. Some commenters had questions about whether a few specific 
uses of funds qualified under this category. For example, commenters 
inquired about whether the funds could be used for behavioral health in 
a school setting or cultural language classes.
    Treasury Response: Treasury is maintaining these enumerated 
eligible uses in the final rule, which are now organized under the 
heading of ``services to address educational disparities.'' Treasury 
reiterates that these uses include addressing educational disparities 
exacerbated by COVID-19, including but not limited to: increasing 
resources for high-poverty school districts, educational services like 
tutoring or afterschool programs, summer education and enrichment 
programs, and supports for students' social, emotional, and mental 
health needs. This also includes responses aimed at addressing the many 
dimensions of resource equity--including equitable and adequate school 
funding; access to a well-rounded education; well-prepared, effective, 
and diverse educators and staff; and integrated support services--in 
order to close long-standing gaps in educational opportunity.
    Further, Treasury is clarifying that improvements or new 
construction of schools and other educational facilities or equipment 
are eligible capital expenditures for disproportionately impacted 
communities. Recipients seeking to use funds for capital expenditures 
should refer to the section Capital Expenditures in General Provisions: 
Other for additional eligibility standards that apply to uses of funds 
for capital expenditures.
    Treasury notes that services to promote healthy childhood 
environments, including childcare, early learning services, and home 
visiting programs that serve infants and toddlers, is a separate 
category of enumerated eligible uses for households impacted by the 
pandemic (see eligible uses for ``promoting healthy childhood 
environments''). Similarly, education services to address the impact of 
lost instructional time during the pandemic are a separate eligible use 
category for households impacted by the pandemic; when providing these 
services, recipients may presume that any K-12 student who lost access 
to in-person instruction for a significant period of time has been 
impacted by the pandemic and is thus eligible for responsive services 
(see eligible uses for ``addressing the impact of lost instructional 
time'').
Proposed Additional Enumerated Eligible Uses Not Incorporated
    The interim final rule posed a question on what other types of 
services or costs Treasury should consider as eligible uses to respond 
to the disproportionate public health or negative economic impacts of 
COVID-19 on low-income populations and communities.
    In response, commenters proposed a wide variety of additional 
recommended enumerated eligible uses to assist disproportionately 
impacted households, ranging from general categories of services (e.g., 
long-term investments to remediate long-term disparities) to highly 
specific examples of services (e.g., a specific type of healthcare 
equipment). As discussed above, Treasury is including several 
additional categories of enumerated eligible uses in the final rule in 
response to public comments.
    Given the large number and diversity of SLFRF recipients, 
Treasury's approach to assistance to households in disproportionately 
impacted communities in the final rule aims to provide enumerated 
eligible uses that respond to disproportionate impacts of the pandemic 
experienced widely in many jurisdictions across the country and are 
intended to simplify and clarify these enumerated eligible uses. At the 
same time, Treasury recognizes that the impacts of the pandemic vary 
over time, by jurisdiction, and by population; as such, the final rule 
provides flexibility for recipients to identify additional 
disproportionate impacts to additional households or classes of 
households and pursue programs and services that respond to those 
disproportionate impacts.
    In the final rule, Treasury has not chosen to include as enumerated 
uses all uses proposed by commenters; given the significant range, and 
in some cases highly specific nature, of the proposed uses Treasury was 
not able to assess that the proposed uses would respond to 
disproportionate impacts experienced in many jurisdictions across the 
country, supporting an enumerated eligible use available to all 
recipients presumptively. However, the final rule continues to provide 
a framework to allow recipients to identify and respond to additional 
disproportionate impacts (for details, see section General Provisions: 
Structure and Standards). Some types of proposed additional enumerated 
eligible uses for assistance to households in disproportionately 
impacted communities were recommended by several commenters:
    <bullet> Capital expenditures. Many commenters recommended that 
capital expenditures on many different types of public and private 
facilities be enumerated eligible uses. For clarity, Treasury has 
addressed all comments on the eligibility of capital expenditures on 
property, facilities, or equipment in one

[[Page 4376]]

section (see section Capital Expenditures in General Provisions: 
Other).
    <bullet> Equity funds. Several commenters recommended that Treasury 
permit SLFRF funds to be deposited into an equity fund to support long-
term racial and economic equity investments. The eligibility of such 
use would depend on the specific structure and uses of funds. Under the 
statute, SLFRF funds can only support costs incurred until December 31, 
2024; see section Timeline for Use of SLFRF Funds in Program 
Administration Provisions. Further, recipients may calculate the cost 
incurred with respect to investments in revolving loan funds based on 
the methodology described in section Treatment of Loans in Program 
Administration Provisions. Projects funded by a revolving loan fund 
using SLFRF funds would also need to be eligible uses of SLFRF funds.
    <bullet> Environmental quality and climate resilience. Several 
commenters recommended eligible uses to enhance environmental quality, 
remediate pollution, promote recycling or composting, or increase 
energy efficiency or electrical grid resilience. Whether these projects 
respond to the disproportionate impacts of the pandemic on certain 
communities would depend on the specific issue they address and its 
nexus to the public health and economic impacts of the pandemic.
b. Assistance to Small Businesses
Background
    The pandemic has severely impacted many businesses, with small 
businesses hit especially hard. Small businesses make up nearly half of 
U.S. private-sector employment \205\ and play a key role in supporting 
the overall economic recovery as they are responsible for two-thirds of 
net new jobs.\206\ Since the beginning of the pandemic, however, 
400,000 small businesses have closed, with many more at risk.\207\ 
Sectors with a large share of small business employment have been among 
those with the most drastic drops in employment.\208\ The negative 
outlook for small businesses has continued: As of November 2021, 
approximately 66 percent of small businesses reported that the pandemic 
has had a moderate or large negative effect on their business, and over 
a third expect that it will take over 6 months for their business to 
return to their normal level of operations.\209\
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    \205\ Board of Governors of the Federal Reserve System, Monetary 
Policy Report (June 12, 2020), https://www.federalreserve.gov/monetarypolicy/2020-06-mpr-summary.htm.
    \206\ U.S. Small Business Administration, Office of Advocacy, 
Small Businesses Generate 44 Percent of U.S. Economic Activity (Jan. 
30, 2019), https://advocacy.sba.gov/2019/01/30/small-businesses-generate-44-percent-of-u-s-economic-activity/.
    \207\ Joseph R. Biden, Remarks by President Biden on Helping 
Small Businesses (Feb. 22, 2021), https://www.whitehouse.gov/briefing-room/speechesremarks/2021/02/22/remarks-by-president-bidenon-helping-small-businesses/.
    \208\ Daniel Wilmoth, U.S. Small Business Administration Office 
of Advocacy, The Effects of the COVID-19 Pandemic on Small 
Businesses, Issue Brief No. 16 (Mar. 2021), available at https://cdn.advocacy.sba.gov/wp-content/uploads/2021/03/02112318/COVID-19-Impact-On-Small-Business.pdf.
    \209\ U.S. Census Bureau, Small Business Pulse Survey, https://portal.census.gov/pulse/data/ (last visited December 7, 2021).
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    This negative outlook is likely the result of many small businesses 
having faced periods of closure and having seen declining revenues as 
customers stayed home.\210\ In general, small businesses can face 
greater hurdles in accessing credit,\211\ and many small businesses 
were already financially fragile at the outset of the pandemic.\212\
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    \210\ Olivia S. Kim et al., Revenue Collapses and the 
Consumption of Small Business Owners in the Early Stages of the 
COVID-19 Pandemic (Nov. 2020), https://www.nber.org/papers/w28151.
    \211\ See, e.g., Board of Governors of the Federal Reserve 
System, Report to Congress on the Availability of Credit to Small 
Businesses (Sept. 2017), available at https://www.federalreserve.gov/publications/2017-september-availability-of-credit-to-small-businesses.htm.
    \212\ Alexander W. Bartik et al., The Impact of COVID-19 on 
small business outcomes and expectations, PNAS 117(30): 17656-66 
(July 28, 2020), available at https://www.pnas.org/content/117/30/17656.
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    While businesses everywhere faced significant challenges during the 
pandemic, minority-owned and very small businesses have faced 
additional obstacles. Between February and April 2020, the number of 
actively self-employed Black business owners decreased by 41 
percent.\213\ During that same time period, Asian and Latino business 
owners decreased by 26 and 32 percent, respectively, compared to a 17 
percent decrease in white business owners.\214\ Female business owners 
also saw significant impacts, with businesses owned by women falling by 
25 percent.\215\
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    \213\ Robert Fairlie, The impact of COVID-19 on small business 
owners: Evidence from the first 3 months after widespread social-
distancing restrictions, Journal of economics & management strategy 
(August 27, 2020), https://doi.org/10.1111/jems.12400.
    \214\ U.S. Small Business Administration, The Effects of the 
COVID-19 Pandemic on Small Businesses (March 2021), https://cdn.advocacy.sba.gov/wp-content/uploads/2021/03/02112318/COVID-19-Impact-On-Small-Business.pdf.
    \215\ Robert Fairlie, supra note 213.
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    Many of the disparities in how minority business owners experienced 
the pandemic are rooted in systemic issues present even before the 
pandemic. For example, before the economic downturn, only 12 percent of 
Black-owned businesses and 19 percent of Hispanic-owned businesses had 
annual earnings of over $1 million compared to 31 percent of white-
owned businesses.\216\ Minority-owned businesses were also 
overrepresented in industries hit hardest by the economic downturn 
(e.g., services, transportation and warehousing, healthcare and social 
assistance, administrative and support and waste management, and 
accommodation and food services).\217\ Approximately 22 percent of all 
minority-owned business fell into the hardest hit industries compared 
to 13 percent of nonminority-owned businesses.\218\
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    \216\ Federal Reserve Bank of Atlanta. 2019. Small Business 
Credit Survey 2019 Report on Minority-Owned Firms. December. 
fedsmallbusiness.org/survey/2019/report-on-minority-owned-firms.
    \217\ Ding, Lei, and Alvaro Sanchez. 2020. What Small Businesses 
Will Be Impacted by COVID-19? Federal Reserve Bank of Philadelphia. 
philadelphiafed.org/covid-19/covid-19-equity-in-recovery/what-small-businesses-will-be-impacted.
    \218\ Lucas Misera, An Uphill Battle: COVID-19's Outsized Toll 
on Minority-Owned Firms, Federal Reserve Bank of Cleveland (October 
8, 2020), https://www.clevelandfed.org/newsroom-and-events/publications/community-development-briefs/db-20201008-misera-report.aspx.
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    Although disparities in annual revenue are not a direct indication 
of a business's ability to weather an economic downturn, they do 
highlight other disparities that make it more challenging for these 
businesses to survive the effects of the pandemic. Black-owned 
startups, for example, face larger challenges in raising capital, 
including securing business loans.\219\
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    \219\ Robert Fairlie, A. Robb, D. Robinson, Black and White: 
Access to Capital among Minority-Owned Startups, NBER Working Paper 
28154 (November 2020), https://www.nber.org/papers/w28154.
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Summary of the Interim Final Rule and Final Rule Structure
    Summary of Interim Final Rule: As discussed above, small businesses 
faced significant challenges in covering payroll, mortgages or rent, 
and other operating costs as a result of the public health emergency 
and measures taken to contain the spread of the virus. Under Sections 
602(c)(1)(A) and 603(c)(1)(A), recipients may ``respond to the public 
health emergency or its negative economic impacts,'' by, among other 
things, providing ``assistance to . . . small businesses.'' 
Accordingly, the interim final rule allowed recipients to provide 
assistance to small businesses to address the negative economic impacts 
faced by those businesses. A

[[Page 4377]]

``small business'' is defined as a business concern or other 
organization that:
    (1) Has no more than 500 employees or, if applicable, the size 
standard in number of employees established by the Administrator of the 
Small Business Administration for the industry in which the business 
concern or organization operates; and
    (2) Is a small business concern as defined in section 3 of the 
Small Business Act (15 U.S.C. 632).
    Specifically, the interim final rule provided that recipients may 
provide assistance to small businesses to adopt safer operating 
procedures, weather periods of closure, or mitigate financial hardship 
resulting from the COVID-19 public health emergency, including:
    <bullet> Loans or grants to mitigate financial hardship such as 
declines in revenues or impacts of periods of business closure;
    <bullet> Loans, grants, or in-kind assistance to implement COVID-19 
prevention or mitigation tactics; and
    <bullet> Technical assistance, counseling, or other services to 
assist with business planning needs.
    The interim final rule further provided that recipients may 
consider additional criteria to target assistance to businesses in 
need, including small businesses. Such criteria may include businesses 
facing financial insecurity, substantial declines in gross receipts 
(e.g., comparable to measures used to assess eligibility for the 
Paycheck Protection Program), or other economic harm due to the 
pandemic, as well as businesses with less capacity to weather financial 
hardship, such as the smallest businesses, those with less access to 
credit, or those serving underserved communities. The interim final 
rule also indicated that recipients should consider local economic 
conditions and business data when establishing such criteria. Finally, 
the interim final rule posed a question on whether there are other 
services or costs that Treasury should consider as eligible uses to 
respond to the disproportionate impacts of COVID-19 on low-income 
populations and communities.
    Final Rule Structure: Consistent with the interim final rule 
approach, the final rule provides a non-exhaustive list of enumerated 
eligible uses for assistance to small businesses that are impacted or 
disproportionately impacted by the pandemic. Further, within Assistance 
to Small Business, a recipient may also identify a negative economic 
impact experienced by small businesses and design and implement a 
response to that negative economic impact, beyond the uses specifically 
enumerated in the final rule, according to the standard described in 
the section Standards: Identifying a Negative Economic Impact. A 
recipient may also identify small businesses that have been 
disproportionately impacted by the public health emergency and design 
and implement a program that responds to the source of that 
disproportionate impact.
    Consistent with other eligible use categories to respond to the 
public health and economic impacts of the pandemic, recipients may 
identify and serve small businesses that experienced a negative 
economic impact or disproportionate impact due to the pandemic, as 
described in the section Standards for Identifying Other Eligible 
Populations. For example, to identify impacted small businesses, a 
recipient may consider whether the small businesses faced challenges in 
covering payroll, mortgage or rent, or other operating costs as a 
result of the public health emergency and measures taken to contain the 
spread of the virus. In order to ease administrative burden, the final 
rule presumes that small businesses operating in QCTs, small businesses 
operated by Tribal governments or on Tribal Lands, and small businesses 
operating in the U.S. territories were disproportionately impacted by 
the pandemic.
    Reorganizations and Cross-References: As detailed above, Treasury 
has re-categorized some uses of funds in the final rule to provide 
greater clarity. For discussion of assistance to small businesses and 
impacted industries to implement COVID-19 mitigation and prevention 
strategies, see section COVID-19 Mitigation and Prevention in Public 
Health.
Small Businesses Eligible for Assistance
    Public Comment: Treasury received many comments about the general 
benefits or drawbacks of use of SLFRF funds to provide assistance to 
small businesses. Some commenters suggested that SLFRF funds should be 
available to assist all small businesses, rather than only businesses 
that experienced direct negative economic impacts due to the public 
health emergency. Other commenters argued that aid to small businesses 
should be narrowed in the final rule, asserting that SLFRF funds should 
instead focus on assistance to households or building public sector 
capacity.
    Treasury also received comments requesting clarification of the 
types of small businesses eligible for assistance. For example, some 
commenters requested clarification about whether microbusinesses were 
included in the definition of small business. Comments also suggested 
that self-employed individuals and Tribal enterprises be classified as 
small businesses, respectively. Commenters argued that these types of 
small businesses are more common among low-income and minority 
businessowners and serve as important institutions in underserved 
communities.
    Finally, some commenters suggested that Treasury permit broader 
enumerated eligible uses to assist small businesses in 
disproportionately impacted communities and generally strengthen 
economic growth in these communities. These commenters recommended that 
Treasury presume small businesses operating in QCTs are 
disproportionately impacted and eligible for broader enumerated uses.
    Treasury Response: As discussed in the section Designating a 
Negative Economic Impact, in the final rule, recipients must identify 
an economic harm caused or exacerbated by the pandemic on a small 
business or class of small businesses to provide services that respond.
    As discussed above, programs or services in this category must 
respond to a harm experienced by a small business or class of small 
businesses as a result of the public health emergency. To identify 
impacted small businesses and necessary response measures, recipients 
may consider impacts such as lost revenue or increased costs, 
challenges covering payroll, rent or mortgage, or other operating 
costs, the capacity of a small business to weather financial hardships, 
and general financial insecurity resulting from the public health 
emergency.
    Recognizing the difficulties faced by small businesses in certain 
communities, the final rule presumes that small businesses operating in 
QCTs, small businesses operated by Tribal governments or on Tribal 
Lands, and small businesses operating in the U.S. territories were 
disproportionately impacted by the pandemic. This presumption parallels 
the final rule's approach to assistance to households, reflecting the 
more severe pandemic impacts in underserved communities and creating a 
parallel structure across different categories of eligible uses to make 
the structure simpler for recipients to understand and navigate.
    Treasury notes that recipients may also designate a class of small 
businesses that experienced a negative economic impact or 
disproportionate negative economic impact (e.g., microbusinesses, small 
businesses in certain economic sectors), design an intervention to fit 
the impact, and

[[Page 4378]]

document that the individual entity is a member of the class. 
Additional information about this framework is included in the section 
General Provisions: Structure and Standards.
    Further, Treasury is maintaining the interim final rule definition 
of ``small business,'' which used the Small Business Administration's 
(SBA) definition of fewer than 500 employees, or per the standard for 
that industry, as defined by SBA. This definition includes businesses 
with very few employees, self-employed individuals, and Tribally owned 
businesses.\220\ Finally, Treasury notes that recipients may award 
SLFRF funds to many different types of organizations, including small 
businesses, to function as a subrecipient in carrying out eligible uses 
of funds on behalf of a recipient government. In this case, a small 
business need not have experienced a negative economic impact in order 
to serve as a subrecipient. See section Distinguishing Subrecipients 
versus Beneficiaries for more detailed discussion of interactions with 
subrecipients, in contrast to beneficiaries of assistance.
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    \220\ In regard to counting employees, businesses owned and 
controlled by a Tribal government are not considered affiliates of 
the Tribal government and are not considered affiliates of other 
businesses owned by the Tribal government because of their common 
ownership by the Tribal government or common management, as 
described in 13 CFR 121.103(b)(2). This definition is consistent 
with the Small Business Administration (SBA) HUBZone definition of a 
``small business concern'' relating to Tribal governments as well as 
how Tribal enterprises are defined for the State Small Business 
Credit Initiative (SSBCI).
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Enumerated Eligible Uses for Assistance to Small Businesses
    Public Comment: Treasury received comments requesting clarification 
of the types of assistance available to small businesses. For example, 
one commenter suggested that outdoor dining be an eligible use for 
SLFRF funds as assistance to small businesses. Other commenters asked 
for clarification about how SLFRF funds could be used to support new 
businesses and start-ups.
    Several commenters requested clarification of whether and how 
recipients may provide services to business districts or downtown 
areas, particularly those that exist in whole or in part within a QCT, 
and requested reduced documentation of the specific negative economic 
impact for the businesses operating within those areas. These 
commenters argued in favor of allowing redevelopment or other support, 
including capital investments, in business districts that were 
negatively impacted by COVID-19. Several commenters also argued that 
funds should be available to support and grow microbusinesses, or 
businesses with five or fewer employees, which are more likely to be 
owned by women and people of color.
    Treasury Response: In the final rule, Treasury is maintaining and 
clarifying the enumerated eligible uses of funds for assistance to 
small businesses that are impacted or disproportionately impacted by 
the pandemic.
    Impacted small businesses. Specifically, Treasury is maintaining 
enumerated eligible uses from the interim final rule for assistance to 
impacted small businesses. These include but are not limited to:
    <bullet> Loans or grants to mitigate financial hardship such as 
declines in revenues or impacts of periods of business closure, for 
example by supporting payroll and benefits costs, costs to retain 
employees, mortgage, rent, or utilities costs, and other operating 
costs;
    <bullet> Loans, grants, or in-kind assistance to implement COVID-19 
prevention or mitigation tactics (see section Public Health for details 
on these eligible uses); and
    <bullet> Technical assistance, counseling, or other services to 
assist with business planning needs.
    Treasury acknowledges a range of potential circumstances in which 
assisting small businesses could be responsive to the negative economic 
impacts of COVID-19, including for small businesses startups and 
microbusinesses and individuals seeking to start small or 
microbusinesses. For example:
    <bullet> As noted above, a recipient could assist small business 
startups or microbusinesses with additional costs associated with 
COVID-19 mitigation tactics; see section Public Health for details on 
these eligible uses.
    <bullet> A recipient could identify and respond to a negative 
economic impact of COVID-19 on new small business startups or 
microbusinesses; for example, if small business startups or 
microbusinesses in a locality faced greater difficulty accessing credit 
than prior to the pandemic or faced increased costs to starting the 
business due to the pandemic or if particular small businesses or 
microbusinesses had lost expected startup capital due to the pandemic.
    <bullet> The interim final rule also discussed, and the final rule 
maintains, eligible uses that provide support for individuals who have 
experienced a negative economic impact from the COVID-19 public health 
emergency, including uses that provide job training for unemployed 
individuals. These initiatives also may support small business start-
ups, microbusinesses, and individuals seeking to start small or 
microbusinesses.
    Disproportionately impacted small businesses. Additionally, 
Treasury agrees with commenters that disproportionately impacted small 
businesses may benefit from additional assistance to address the 
sources of that disparate impact.
    As such, the final rule provides a broader set of enumerated 
eligible uses for disproportionately impacted small businesses and/or 
small businesses in disproportionately impacted business districts. 
Recipients may use SLFRF funds to assist these businesses with certain 
capital investments, such as rehabilitation of commercial properties, 
storefront improvements, and fa[ccedil]ade improvements. Recipients may 
also provide disproportionately impacted microbusinesses additional 
support to operate the business, including financial, childcare, and 
transportation supports.
    Recipients could also provide technical assistance, business 
incubators, and grants for start-ups or expansion costs for 
disproportionately impacted small businesses. Note that some of these 
types of assistance are similar to those eligible to respond to small 
businesses that experienced a negative economic impact (``impacted'' 
small businesses). However, because the final rule presumes that some 
small businesses were disproportionately impacted, these enumerated 
eligible uses can be provided to those businesses without any specific 
assessment of whether they individually experienced negative economic 
impacts or disproportionate impacts due to the pandemic.
    Cross-References: Recipients providing assistance to small 
businesses for capital expenditures (i.e., expenditures on property, 
facilities, or equipment) should also review the section Capital 
Expenditures in General Provisions: Other, which describes eligibility 
standards that apply to capital expenditures. Recipients should also 
note that services to address vacant or abandoned commercial or 
industrial properties are addressed in section Vacant or Abandoned 
Properties in Assistance to Households.
Loans to Small Businesses
    Public Comment: Treasury received many comments requesting 
clarification on using SLFRF funds to establish funds that provide 
loans to small businesses. For example, commenters sought clarification 
of how eligible use

[[Page 4379]]

requirements and applicable dates for SLFRF funds would apply to third 
party organizations (like economic development organizations) who 
receive SLFRF funds in order to establish a loan fund. In addition, 
commenters requested clarification on what requirements apply to loan 
programs with available funds remaining after December 31, 2024.
    Treasury Response: SLFRF funds may be used to make loans, including 
to small businesses, provided that the loan is an eligible use, and the 
cost of the loan is tracked and reported in accordance with Treasury's 
Compliance and Reporting Guidance. Funds that are unobligated after 
December 31, 2024 must be returned to Treasury. See section Treatment 
of Loans for more information about using SLFRF funds for loan 
programs.
c. Assistance to Nonprofits
    Background: Nonprofits have faced significant challenges because of 
the pandemic, including increased demand for services and changing 
operational needs.\221\ Prior to the pandemic, the median U.S. 
nonprofit reported that it had six months of cash on hand.\222\ This 
varied by sector, however, with some sectors like disaster relief 
organizations reporting a median of 17 months cash on hand, and others, 
like mental health and crisis intervention organizations reporting only 
three months.\223\ Evidence suggests that the pandemic has damaged the 
financial health of nonprofits, with small nonprofits, which tend to 
rely more heavily on donations than large nonprofits, reporting 
relatively larger declines in donations -- 42 percent versus 29 
percent, respectively.\224\ Among nonprofits that collect fees for 
services, the median revenue amount collected from such fees fell by 30 
percent from 2019 to 2020, with arts organization experiencing a 50 
percent decline.\225\ Nonprofits also experienced significant job 
losses. While employment in the nonprofit sector has recovered from its 
low point in 2020, as of November 2021, the sector remained 485,000 
jobs below its pre-pandemic level.\226\ In addition, some nonprofits 
may have experienced declines in volunteer staffing during the 
pandemic.\227\
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    \221\ See, e.g., Federal Reserve Bank of San Francisco, Impacts 
of COVID-19 on Nonprofits in the Western United States (May 2020), 
https://www.frbsf.org/community-development/files/impact-of-covid.
    \222\ Philanthropy and COVID-19: Measuring one year of giving, 
Candid and the Center for Disaster Philanthropy. (2021), https://www.issuelab.org/resources/38039/38039.pdf.
    \223\ Id.
    \224\ Elizabeth T. Boris et al., Nonprofit Trends and Impacts 
2021, Urban Institute (October 7, 2021), https://www.urban.org/research/publication/nonprofit-trends-and-impacts-2021/view/full_report.
    \225\ Id.
    \226\ Chelsea Newhouse, COVID-19 JOBS UPDATE, NOVEMBER 2021: 
Nonprofits add just 5,000 jobs in November, Center for Civil Society 
Studies at Johns Hopkins University (December 10, 2021), http://ccss.jhu.edu/november-2021-jobs/.
    \227\ Elizabeth T. Boris et al. supra note 224 at p. 38.
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    At the same time, nonprofits provide a host of services for their 
communities, including helping Americans weather the multitude of 
challenges presented by the pandemic. The ARPA and the interim final 
rule recognized this dichotomy--nonprofits as entities that have 
themselves been negatively impacted by the pandemic and as entities 
that provide services that respond to the public health and negative 
economic impacts of the pandemic on households and others --by creating 
two roles for nonprofits.
    First, under Sections 602(c)(1)(A) and 603(c)(1)(A), recipients may 
``respond to the public health emergency or its negative economic 
impacts,'' by, among other activities, providing ``assistance to . . . 
nonprofits.'' The interim final rule defined assistance to nonprofits 
to include ``loans, grants, in-kind assistance, technical assistance or 
other services, that responds to the negative economic impacts of the 
COVID-19 public health emergency,'' and ``nonprofit'' to mean a tax-
exempt organization under Section 501(c)(3) of the U.S. Internal 
Revenue Code.\228\
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    \228\ Sec.  35.3 Definitions.
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    Second, as discussed above, ARPA and the interim final rule 
provided that nonprofit organizations may also receive funds as 
subrecipients of a recipient government (i.e., a government that 
received SLFRF funds); subrecipients carry out an eligible use of SLFRF 
funds on behalf of a recipient government (e.g., a recipient government 
that would like to provide food assistance to impacted households may 
grant funds to a nonprofit organization to carry out that eligible 
use). Recipients generally have wide latitude to award funds to many 
types of organizations, including nonprofit or for-profit 
organizations, as subrecipients to carry out eligible uses of funds on 
their behalf. For further information on distinguishing between 
beneficiaries and subrecipients, as well as the impacts of the 
distinction on reporting and other requirements, see section Transfers 
of Funds and section Distinguishing Subrecipients versus Beneficiaries 
under the Public Health and Negative Economic Impacts eligible use 
category.\229\
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    \229\ The ARPA also states under ``Transfer Authority'' that a 
Recipient may transfer funds to a private nonprofit organization 
such as those defined in paragraph (17) of section 401 of the 
McKinney-Vento Homeless Assistance Act (42 U.S.C. 11360(17). See 602 
& 603(c)(3) of the Social Security Act. See section Transfers of 
Funds for additional information on other types of entities, 
including other forms of nonprofits, that may receive transfers.
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    Reorganization and Cross-References: Under the interim final rule, 
assistance to disproportionately impacted communities was a separate, 
stand-alone category. The final rule reorganizes the disproportionate 
impact analysis within the sections Assistance to Households, 
Assistance to Small Business, and Assistance to Nonprofits to better 
articulate how recipients can serve disproportionately impacted 
beneficiaries in each of those categories.
    As detailed above in the Public Health subsection, in response to 
public comments describing uncertainty on which eligible use category 
should be used to assess different potential uses of funds, Treasury 
has re-categorized some uses of funds in the final rule to provide 
greater clarity. For discussion of assistance to nonprofits to 
implement COVID-19 mitigation and prevention strategies, see section 
COVID-19 Mitigation and Prevention in Public Health.
    Recipients providing assistance via nonprofits involving capital 
expenditures (i.e., expenditures on property, facilities, or equipment) 
should also review the section Capital Expenditures in General 
Provisions: Other, which describes eligibility standards for these 
expenditures. Recipients providing assistances in the form of loans 
should review the section Treatment of Loans.
    Public Comment: Eligible Assistance to Impacted and 
Disproportionately Impacted Nonprofits: A few commenters asked Treasury 
to be more explicit in the final rule that recipients may use funds to 
provide relief directly to nonprofit organizations and to explain how 
nonprofits might qualify themselves for assistance and what expenses 
SLFRF funds may be used to cover.\230\ Commenters requested that 
Treasury note that the pandemic is

[[Page 4380]]

leading to a changing financial landscape for nonprofits.
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    \230\ While not stated specifically in the interim final rule, 
the Department does not require or have a preference as to the 
payment structure for recipients that transfer funds to 
subrecipients (e.g., advance payments, reimbursement basis, etc.). 
Ultimately, recipients must comply with the eligible use 
requirements and any other applicable laws or requirements and are 
responsible for the actions of their subrecipients or beneficiaries.
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    Treasury Response: Eligible Assistance to Impacted and 
Disproportionately Impacted Nonprofits: The interim final rule provided 
for, and the final rule maintains, the ability for recipients to 
provide direct assistance to nonprofits that experienced public health 
or negative economic impacts of the pandemic. Specifically, recipients 
may provide direct assistance to nonprofits if the nonprofit has 
experienced a public health or negative economic impact as a result of 
the pandemic. For example, if a nonprofit organization experienced 
impacts like decreased revenues or increased costs (e.g., through 
reduced contributions or uncompensated increases in service need), and 
a recipient provides funds to address that impact, then it is providing 
direct assistance to the nonprofit as a beneficiary under Subsection 
(c)(1) of Sections 602 and 603. Direct assistance may take the form of 
loans, grants, in-kind assistance, technical assistance, or other 
services that respond to the negative economic impacts of the COVID-19 
public health emergency.
    A recipient may identify a negative economic impact experienced by 
a nonprofit, or class of nonprofits, and design and implement a 
response to that negative economic impact, see section Standards: 
Designating a Negative Economic Impact. The final rule provides a non-
exhaustive list of enumerated eligible uses for assistance to 
nonprofits that are impacted or disproportionately impacted by the 
pandemic.
    A recipient may also identify a class of nonprofits that have been 
disproportionately impacted by the public health emergency and design 
and implement a program that responds to the source of that 
disproportionate impact. For example, a recipient may determine that 
nonprofits offering after-school programs within its jurisdiction were 
disproportionately impacted by the pandemic due to the previous in-
person, indoors nature of the work and the nonprofits' reliance on fees 
received for services (e.g., attendance fees). The recipient might then 
design an intervention to assist those nonprofits in adapting their 
programming (e.g., to outdoor or online venues), their revenue 
structure (e.g., adapting the fee for service structure or developing 
expertise in digital donation campaigns), or both. Additional 
information about this framework is included in General Provisions: 
Structure and Standards. In order to ease administrative burden, the 
final rule presumes that nonprofits operating in QCTs, operated by 
Tribal governments or on Tribal Lands, or operating in the U.S. 
territories were disproportionately impacted by the pandemic.
    To summarize, a recipient may determine that certain nonprofits 
were impacted by the pandemic or were disproportionately impacted by 
the pandemic and provide responsive services.
    Public Comment: Beneficiaries and Subrecipients: As noted elsewhere 
in this final rule, Treasury received multiple comments expressing 
uncertainty on how to categorize a particular activity in the eligible 
use categories. For instance, some commenters requested that recipients 
be able to use SLFRF funds for certain expenses incurred by nonprofits 
(e.g., unemployment charges) as a response to a public health or 
negative economic impact to that nonprofit; others asked if nonprofits 
providing certain services (e.g., social services) made them eligible 
for direct assistance. Commenters also requested that Treasury 
acknowledge that engagement directly with nonprofit organizations in 
low-income communities and communities of color may allow the recipient 
to better assess economic harms in these areas.
    Treasury Response: Beneficiaries and Subrecipients: Treasury 
recognizes that many nonprofits play important roles in their 
communities, and some may have experienced public health or negative 
economic impacts during the pandemic. As such, under the interim final 
rule and the final rule, nonprofits may be impacted by the pandemic and 
receive assistance as a beneficiary, as described above, and/or be a 
subrecipient providing services on behalf of a recipient.\231\
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    \231\ Note, this response is meant to clarify the difference 
between nonprofits as beneficiaries and nonprofits as subrecipients. 
It is not meant to limit the types of relationships that a recipient 
may enter into with a nonprofit as permitted under the Uniform 
Guidance.
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    Specifically, the interim final rule also allowed for, and the 
final rule maintains, the ability for the recipient to transfer, e.g., 
via grant or contract, funds to nonprofit entities to carry out an 
eligible use on behalf of the recipient. Treasury notes that recipients 
may award SLFRF funds to many different types of organizations to carry 
out eligible uses of funds and serve beneficiaries on behalf of a 
recipient government (e.g., assisting in a vaccination campaign, 
operating a job training program, developing affordable housing). When 
a recipient provides funds to an organization to carry out eligible 
uses of funds and serve beneficiaries, the organization becomes a 
subrecipient. In this case, a nonprofit need not have experienced a 
negative economic impact in order to serve as a subrecipient.
    In the context of SLFRF, nonprofits of all types may be 
subrecipients. Treasury is not restricting the types of nonprofits that 
can operate as subrecipients, rather allowing recipients to decide what 
form best meets the needs of their community. Therefore, a 
``nonprofit'' that is acting as subrecipient could include, but is not 
limited to, a nonprofit as that term is defined in paragraph (17) of 
section 401 of the McKinney-Vento Homeless Assistance.\232\ See section 
Distinguishing Subrecipients versus Beneficiaries for further 
information. Additional guidance on determining subrecipient status may 
be found in the Uniform Guidance.<SUP>233</SUP>
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    \232\ See sections 602(c)(3) and 603(c)(3) of the Social 
Security Act. See also Section 401 of the McKinney-Vento Homeless 
Assistance Act (42 U.S.C. 11360(17), which defines a ``private 
nonprofit organization.''
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    Recipients may transfer funds to subrecipients in several ways, 
including advance payments and on a reimbursement basis. Ultimately, 
recipients must comply with the eligible use requirements and any other 
applicable laws or requirements and are responsible for the actions of 
their subrecipients or beneficiaries.
    As part of accepting the Award Terms and Conditions for SLFRF, each 
recipient agreed to maintain a conflict-of-interest policy consistent 
with 2 CFR 200.318(c) that is applicable to all activities funded with 
the SLFRF award. Pursuant to this requirement, decisions concerning 
SLFRF funds must be free of undisclosed personal or organizational 
conflicts of interest, both in fact and in appearance. Recipients may 
avoid conflicts of interest in providing assistance to nonprofits or 
making subrecipient awards by, inter alia, making aid available to 
nonprofits on generally applicable terms or utilizing a competitive 
grant process, respectively. A recipient may not use control over SLFRF 
funds for their own private gain. Furthermore, no employee, officer, or 
agent may participate in the selection, award, or administration of a 
contract supported by a federal award if he or she has a real or 
apparent conflict of interest.
    Public Comment: Definition of Nonprofit: Treasury also received 
several requests to expand the definition of nonprofits so that other 
tax-exempt entities (e.g., 501(c)(7)s, 501(c)(9)s, 501(c)(19)s, 
nonprofits with ``historical

[[Page 4381]]

significance'') could be eligible for direct assistance as 
beneficiaries.
    Treasury Response: Definition of Nonprofit: The final rule expands 
the definition of nonprofits to mean 501(c)(3) organizations and 
501(c)(19) organizations.\234\ The 501(c)(3) classification includes a 
wide range of organizations with varying charitable or public service-
oriented goals (e.g., housing, food assistance, job training). As 
discussed above, these nonprofit organizations often experienced 
hardship due to increased needs for services combined with decreased 
donations and other sources of funding. In response to comments, 
Treasury has expanded the definition of nonprofit to include 501(c)(19) 
organizations, which includes veterans' organizations, to provide 
recipients more flexibility and in alignment with the definition of 
nonprofit adopted by the CARES Act, wherein 501(c)(3)s and 501(c)(19)s 
were eligible for assistance.\235\
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    \234\ Sec.  35.3 Definitions.
    \235\ Treasury considered expanding the definition of nonprofit 
to include 501(c)(6) organizations, as Congress later did in the 
Coronavirus Response and Consolidated Appropriations Act of 2021, 
but ultimately decided to retain the original CARES Act definition. 
To the extent impacted by the pandemic, 501(c)(6) organizations may 
be eligible to receive funds to support eligible uses that align 
with their overall purpose (e.g., tourism promotion in aid of an 
impacted industry).
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    Public Comment: Reporting Requirements: One commenter asked 
Treasury to clarify if nonprofits that receive direct assistance as 
beneficiaries are required to comply with guidelines and reporting 
requirements.
    Treasury Response: Reporting Requirements: Nonprofits that receive 
direct assistance as beneficiaries are not subrecipients under SLFRF 
and are therefore not required to comply with SLFRF reporting 
requirements. However, the recipient must comply with SLFRF reporting 
requirements, which would require reporting obligations and 
expenditures for assistance to nonprofits. The recipient may also 
choose to establish other forms of reporting or accountability as a 
part of the recipient's direct assistance program.
    A nonprofit entity that receives a transfer from a recipient is a 
subrecipient. Per the Uniform Guidance, subrecipients must adhere to 
the same requirements as recipients. Therefore, a nonprofit 
subrecipient may only receive funds to carry out an eligible use of 
SLFRF funds and must comply with any reporting and compliance 
requirements. Note that recipients are ultimately responsible for 
reporting information to Treasury and must collect any necessary 
information from their subrecipients to complete required reporting.
d. Aid to Impacted Industries
    The interim final rule allowed for ``aid to tourism, travel, and 
hospitality, and other impacted industries'' that responds to the 
negative economic impacts of the COVID-19 public health emergency. In 
designating other impacted industries, Treasury specified that 
recipients should consider the ``extent of the economic impact as 
compared to tourism, travel, and hospitality'' and ``whether impacts 
were due to the COVID-19 pandemic, as opposed to longer-term economic 
or industrial trends unrelated to the pandemic.'' \236\ Treasury 
identified declines in employment and revenue as possible metrics to 
compare the economic impact on a particular industry relative to the 
tourism, travel, and hospitality industries.
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    \236\ Coronavirus State and Local Fiscal Recovery Funds, 86 FR 
at 26795.
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    Treasury further provided that aid should be limited to businesses, 
attractions, business districts, and Tribal development districts \237\ 
that were operating prior to the pandemic and affected by required 
closures and other efforts to contain the pandemic. Examples of 
eligible aid include assistance to implement COVID-19 mitigation and 
infection prevention measures, aid to support safe reopening of 
businesses in these industries, as well as aid for a planned expansion 
or upgrade of tourism, travel, and hospitality facilities delayed due 
to the pandemic. The interim final rule and Treasury's subsequent 
Compliance and Reporting Guidance also required governments to publicly 
report assistance provided to private-sector businesses under this 
eligible use and maintain records of their assessments to facilitate 
transparency and accountability.
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    \237\ For a definition of ``Tribal development districts,'' 
please see FAQ 2.9 at the following: Coronavirus State and Local 
Fiscal Recovery Funds, Frequently Asked Questions, as of July 19, 
2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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    Reorganization and Cross-References: As detailed above, Treasury 
has re-categorized some uses of funds in the final rule to provide 
greater clarity. In the interim final rule, aid to impacted industries 
to implement COVID-19 mitigation and prevention strategies was 
categorized under Aid to Impacted Industries; the final rule addresses 
these items under the section COVID-19 Mitigation and Prevention in 
Public Health. Recipients should also be aware of the difference 
between beneficiaries of assistance and subrecipients when working with 
impacted industries; for further information, see section 
Distinguishing Subrecipients versus Beneficiaries.
Designating an Impacted Industry
    Public Comment: Many commenters requested greater clarity on how to 
designate ``other impacted industries'' within their jurisdiction. 
Commenters requested greater specificity as to the metrics used to 
measure impact, with some suggesting metrics such as the change in the 
size of an industry's workforce due to the pandemic, as well as 
consideration of whether and why employees are choosing to return to 
work at slower rates in certain industries. One commenter asked if this 
meant nearly every industry was ``disproportionately impacted.'' Some 
commenters encouraged Treasury to focus on industries most negatively 
impacted by the pandemic, including disallowing across-the-board 
business subsidies to businesses that were not negatively impacted by 
the pandemic and saw revenue or profit growth. Other commenters asked 
for flexibility for recipients to determine impacted industries based 
on their local knowledge of the economic landscape.
    Treasury Response: The final rule maintains the interim final 
rule's approach of allowing recipients to designate impacted industries 
outside the travel, tourism, and hospitality industries, and, in 
response to comments, provides greater clarity as to how recipients may 
designate such impacted industries.
    Sections 602(c)(1)(A) and 603(c)(1)(A) recognize that the tourism, 
travel, and hospitality industries are severely negatively impacted by 
the pandemic. Under the final rule, recipients may provide eligible aid 
(described in further detail herein) to the tourism, travel, and 
hospitality industries. Treasury considers Tribal development 
districts, which are commercial centers for Tribal hospitality, gaming, 
tourism, and entertainment and can include Tribal enterprises, as part 
of the tourism, travel, and hospitality industries that have been 
severely hit by the pandemic. Therefore, Treasury reaffirms that Tribal 
development districts are considered impacted industries and recipients 
may provide eligible aid to them.
    To identify other industries comparably impacted to the tourism, 
travel, and hospitality industries, recipients should undertake a two-
step process: Identifying an industry and determining whether that 
industry is comparably impacted.

[[Page 4382]]

    First, recipients should identify an industry to be assessed. In 
identifying this industry, the final rule provides recipients the 
flexibility to define its substantive or geographic scope.\238\ 
Recipients may identify a broad sector that encompasses a number of 
sub-industries, or they may identify a specific sub-industry to be 
assessed. For example, a recipient may identify ``personal care 
services'' as an industry, or they may identify a more specific 
category within the ``personal care services'' industry (e.g., barber 
shops) as an industry. In defining the industry, Treasury encourages 
recipients to define narrow and discrete industries eligible for aid. 
Recipients are not required to follow, but may consider following, 
industry classifications under the North American Industry 
Classification System (NAICS). Treasury notes that the larger and more 
diverse the sector, the more difficult it may be to demonstrate that 
the larger and less specific sector is negatively impacted in the same 
way given the scale and diversity of businesses within it.
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    \238\ Once an industry is designated as impacted, aid should be 
generally broadly available to businesses in the industry that 
qualify. Recipients should document how they defined the scope of 
their industry and how they determined that the industry was 
impacted. For states and territories, this includes documenting 
their justification for defining a constituent industry with greater 
geographic precision than state or territory-wide.
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    State or territory recipients may also define a constituent 
industry with greater geographic precision than state or territory-
wide. For example, a state may identify a particular industry in a 
certain region of the state that was negatively impacted by the 
pandemic, even if the same industry in the rest of the state did not 
see a meaningful negative economic impact from the pandemic. State 
recipients oversee large and diverse industries, sometimes with 
differences in economic activity between geographic regions. Allowing 
greater geographic precision allows recipients to target aid to those 
that need it most, ensuring that state averages do not conceal hard-hit 
areas in their state.
    Second, to determine whether the industry is ``impacted,'' 
recipients should compare the negative economic impacts of the public 
health emergency on the identified industry to the impacts observed on 
the travel, tourism, and hospitality industries.
    1. Simplified test. An industry is presumed to be impacted if the 
industry experienced employment loss of at least 8 percent.
    Specifically, a recipient should compare the percent change in the 
number of employees of the recipient's identified industry and the 
national Leisure & Hospitality sector in the three months before the 
pandemic's most severe impacts began (a straight three-month average of 
seasonally-adjusted employment data from December 2019, January 2020, 
and February 2020) with the latest data as of the final rule release (a 
straight three-month average of seasonally-adjusted employment data 
from September 2021, October 2021, and November 2021).\239\ The 
national Leisure & Hospitality sector largely represents the national 
travel, tourism, and hospitality industries enumerated in the statute. 
According to the Bureau of Labor Statistics, employment has fallen by 
approximately 8 percent for the national Leisure & Hospitality sector 
when comparing the most recent three-month period available as of the 
date of adoption of the final rule to the three-month period 
immediately before the public health emergency. Therefore, if the 
identified industry has suffered an employment loss of at least 8 
percent, the final rule presumes the industry to be an ``impacted 
industry.''
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    \239\ National Leisure & Hospitality supersector employment data 
can be found on the U.S. Bureau of Labor Statistics website: U.S. 
Bureau of Labor Statistics, Leisure and Hospitality, https://www.bls.gov/iag/tgs/iag70.htm (last visited December 7, 2021).
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    For parity and simplicity, smaller recipients without employment 
data that measure industries in their specific jurisdiction may use 
data available for a broader unit of government for this calculation 
(e.g., a county may use data from the state in which it is located; a 
city may use data for the county, if available, or state in which it is 
located) solely for purposes of determining whether a particular 
industry is an impacted industry.
    2. If simplified test is not met. If an industry does not satisfy 
the test above or data are unavailable, the recipient may still 
designate the industry as impacted by demonstrating the following:
    a. The recipient can show that the totality of relevant major 
economic indicators demonstrate that the industry is experiencing 
comparable or worse economic impacts as the national tourism, travel, 
and hospitality industries at the time of the publication of the final 
rule, and that the impacts were generally due to the COVID-19 public 
health emergency. Example economic indicators include gross output, 
GDP, net profits, employment levels, and projected time to restore 
employment back to pre-pandemic levels. Recipients may rely on 
available economic data, government research publications, research 
from academic sources, and other quantitative sources for this 
determination.
    If quantitative data is unavailable, the recipient can rely on 
qualitative data to show that the industry is experiencing comparable 
or worse economic impacts as the national tourism, travel, and 
hospitality industries, and the impacts were generally due to the 
COVID-19 public health emergency. Recipients may rely on sources like 
community interviews, surveys, and research from relevant state and 
local government agencies.
    As the public health emergency and economic recovery evolves, 
recipients should assess how industry impacts shift over time. Impacted 
industries may recover in a short period of time and no longer face a 
negative economic impact; in those circumstances, the recipient should 
ensure that the extent and length of aid is reasonably proportional to 
the negative economic impact that is experienced, as detailed further 
below and in section General Provisions: Structure and Standards. 
Recipients may add to their list of impacted industries by showing that 
the negative economic impacts to the industry at the time of the 
designation are comparable to the negative economic impacts to the 
national tourism, travel, and hospitality sectors as of the date of the 
final rule adoption, as detailed herein.
Eligible Aid
    Public Comment: Commenters asked for further clarification as to 
the definition of eligible aid to an impacted industry, with many 
requesting that a broad range of aid be eligible. Examples of aid that 
recipients asked to be considered eligible include aid to businesses to 
cover COVID-19 mitigation costs and planned renovations or improvements 
to tourism, travel, and hospitality facilities, as well as marketing 
and in-kind incentives to attract visitors. Commenters also asked about 
the eligibility of aid to broadly cover losses incurred by facilities 
such as convention centers and hotels due to the pandemic's economic 
impact. Commenters also asked for further clarification about the 
requirements related to private-sector reporting. Further, some 
commenters asked for clarification about eligible aid to impacted 
industries owned and operated by Tribal governments, including for 
Tribal construction projects that have been delayed due to the 
pandemic's economic impacts, and for deference to Tribal determinations 
of negative economic impacts.

[[Page 4383]]

    Treasury Response: In response to commenters' requests for 
clarification on eligible aid, the final rule requires that aid to 
impacted industries, including to Tribal development districts, be 
designed to address the harm experienced by the impacted industry.
    First, recipients should identify a negative economic impact, i.e., 
an economic harm, that is experienced by businesses in the impacted 
industry. Second, recipients should select a response that is designed 
to address the identified economic harm resulting from or exacerbated 
by the public health emergency. Responses must also be related and 
reasonably proportional to the extent and type of harm experienced; 
uses that bear no relation or are grossly disproportionate to the type 
or extent of harm experienced would not be eligible uses. Recipients 
should consider the further discussion of this standard provided in the 
sections Standards: Designating a Public Health Impact and Standards: 
Designating a Negative Economic Impact.
    These responses may take the form of direct spending by recipients 
to promote an industry or support for businesses within an ``impacted'' 
industry that experienced a negative economic impact (e.g., through a 
grant program). Examples of eligible responses include:
    <bullet> Aid to mitigate financial hardship due to declines in 
revenue or profits by supporting payroll costs and compensation of 
returning employees for lost pay and benefits during the COVID-19 
pandemic, as well as support of operations and maintenance of existing 
equipment and facilities, such as rent, leases, and utilities;
    <bullet> Aid for technical assistance, counseling, and other 
services to assist with business planning needs; and
    <bullet> Aid to implement COVID-19 mitigation and infection 
prevention measures, such as vaccination or testing programs, is 
broadly eligible for many types of entities, including travel, tourism, 
hospitality, and other impacted industries. Recipients providing aid to 
impacted industries for COVID-19 public health measures should review 
the section Assistance to Businesses to Implement COVID-19 Strategies 
in Public Health, which describes types of eligible uses of funds in 
this category.
    To address the identified harms, responses (e.g., aid through a 
grant program) should be generally broadly available to all businesses 
within the impacted industry to avoid the risk of self-dealing, 
preferential treatment, and conflicts of interest.\240\ Treasury 
encourages recipients to design aid programs such that funds are first 
used for operational expenses that are generally recognized as ordinary 
and necessary for the recipient's operation, such as payroll, before 
being used on other types of costs. As noted in the section General 
Standards: Structure and Standards, uses of funds that do not respond 
to the negative economic impacts of the pandemic, such as excessive 
compensation to employees, is ineligible.
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    \240\ As part of accepting the Award Terms and Conditions for 
SLFRF, each recipient agreed to maintain a conflict-of-interest 
policy consistent with 2 CFR 200.318(c) that is applicable to all 
activities funded with the SLFRF award. Pursuant to this policy, 
decisions concerning SLFRF must be free of undisclosed personal or 
organizational conflicts of interest, both in fact and in 
appearance. Recipients may avoid conflicts of interest in awarding 
aid to impacted industries by, inter alia, making aid available to 
businesses in the industry on generally applicable terms or 
utilizing a competitive grant process. A recipient may not use 
control over SLFRF for their own private gain. Furthermore, no 
employee, officer, or agent may participate in the selection, award, 
or administration of a contract supported by a federal award if he 
or she has a real or apparent conflict of interest.
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    The final rule maintains the interim final rule's requirement that 
aid may only be considered responsive to the negative economic impacts 
of the pandemic if it supports businesses, attractions, and Tribal 
development districts operating prior to the pandemic and affected by 
required closures and other efforts to contain the pandemic. Further, 
to facilitate transparency and accountability, the final rule maintains 
the interim final rule's requirement that recipients publicly report 
assistance provided to private-sector businesses under this eligible 
use, including tourism, travel, hospitality, and other impacted 
industries, and its connection to negative economic impacts of the 
public health emergency. Recipients also should maintain records to 
support their assessment of how businesses receiving assistance were 
affected by the negative economic impacts of the public health 
emergency and how the aid provided responds to these impacts.
    Recipients providing aid to impacted industries for capital 
expenditures (i.e., expenditures on property, facilities, or 
equipment), including Tribal governments providing aid to Tribal 
development districts, should also review the section Capital 
Expenditures in General Provisions: Other, which describes eligibility 
standards that are applicable to these expenditures, depending on the 
type of aid. Recipients providing assistance in the form of loans 
should review the section Treatment of Loans in Program Administration 
Provisions.
4. General Provisions: Other
    As noted above, the final rule consolidates into a General 
Provisions section several types of uses of funds; in the interim final 
rule, the eligibility of these uses of funds was discussed within 
specific categories of eligible uses for public health and negative 
economic impacts. Treasury anticipates that this re-organization will 
enhance recipient clarity in assessing eligible uses of funds. These 
General Provisions apply across all uses of funds under public health 
and negative economic impacts.
    Specifically, this section considers eligible uses for:
    <bullet> Public Sector Capacity and Workforce, which includes 
several separate and non-mutually exclusive categories articulated in 
the interim final rule: public health and safety staff; rehiring state, 
local, and Tribal government staff; expenses for administering COVID-19 
response programs; expenses to improve the efficacy of public health or 
economic relief programs; and administrative expenses caused or 
exacerbated by the pandemic. Treasury recognizes that these are closely 
related and frequently overlapping categories. The final rule treats 
them as a single purpose, supporting public sector capacity, and 
provides coordinated guidance on the standards and presumptions that 
apply to them.
    <bullet> Capital Expenditures, which was addressed only under 
Public Health in the interim final rule. The final rule moves this 
expense to General Provisions and provides more clarity on the 
eligibility of capital expenditures across all aspects of the public 
health and negative economic impacts eligible use category.
    <bullet> Distinguishing Subrecipients versus Beneficiaries, which 
describes the differences between these two categories. Recipient 
governments responding to the public health and negative economic 
impacts of the pandemic may provide assistance to beneficiaries or 
execute an eligible use of funds through a subrecipient; some types of 
entities (e.g., nonprofits) could fit into either category depending on 
the specific purpose of the use of funds.
    <bullet> Uses Outside the Scope of this Category, which addresses 
uses of funds that are ineligible or generally ineligible under this 
eligible use category in the interim final rule. These uses of funds 
remain ineligible under the final rule, but Treasury has re-categorized 
where they are addressed, as described below.

[[Page 4384]]

This section also addresses enumerated eligible uses proposed by 
commenters that Treasury has not incorporated into the final rule.
    Recipients should also note that the Office of Management and 
Budget's (OMB) Uniform Administrative Requirements, Cost Principles, 
and Audit Requirements for Federal Awards (commonly called the 
``Uniform Guidance'') generally applies to SLFRF.
a. Public Sector Capacity and Workforce
Public Safety, Public Health, and Human Services Staff
    Summary of Interim Final Rule: Under the interim final rule, funds 
may be used for payroll and covered benefits \241\ for public safety, 
public health, health care, human services, and similar employees \242\ 
of a recipient government, for the portion of the employee's time that 
is spent responding to COVID-19. For administrative convenience, the 
recipient may consider public health and safety employees to be 
entirely devoted to responding to COVID-19, and therefore their full 
payroll and covered benefits eligible to be covered, if the employee, 
or his or her operating unit or division, is ``primarily dedicated'' to 
responding to COVID-19, meaning that more than half of the employee, 
unit, or division's time is dedicated to responding to COVID-19. 
Recipients may consider other presumptions for assessing the extent to 
which an employee, division, or operating unit is responding to COVID-
19. Recipients must periodically reassess their determination and 
maintain records to support their assessment, such as payroll records, 
attestations from supervisors or staff, or regular work product or 
correspondence; recipients need not track staff hours. The interim 
final rule also posed a question on how long recipients should be able 
to use funds for staff responding to COVID-19 and what other measures 
or presumptions might Treasury consider to assess the extent to which 
public sector staff are engaged in COVID-19 response in an easily 
administrable manner.
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    \241\ In general, if an employee's wages and salaries are an 
eligible use of SLFRF funds, recipients may treat the employee's 
covered benefits as an eligible use of SLFRF funds. For purposes of 
SLFRF funds, covered benefits include costs of all types of leave 
(vacation, family-related, sick, military, bereavement, sabbatical, 
jury duty), employee insurance (health, life, dental, vision), 
retirement (pensions, 401(k)), unemployment benefit plans (federal 
and state), workers compensation insurance, and Federal Insurance 
Contributions Act (FICA) taxes (which includes Social Security and 
Medicare taxes). As described further in the section Deposits into 
Pension Funds in Restrictions on Use, that limitation on use does 
not apply to pension contributions that are part of regular payroll 
contributions for employees whose wages and salaries are an eligible 
use of SLFRF funds.
    \242\ Note that the interim final rule adapted prior guidance 
issued for CRF that described these four categories of employees; 
however, when listing the specific occupations or types of employees 
in each of these categories, the guidance collapses health care and 
public health into one category titled ``public health.'' Therefore, 
the presumption described around public health employees also covers 
health care employees.
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    Treasury also provided further guidance on the types of employees 
covered by this category of eligible use, specifically: ``Public safety 
employees would include police officers (including state police 
officers), sheriffs and deputy sheriffs, firefighters, emergency 
medical responders, correctional and detention officers, and those who 
directly support such employees such as dispatchers and supervisory 
personnel. Public health employees \243\ would include employees 
involved in providing medical and other health services to patients and 
supervisory personnel, including medical staff assigned to schools, 
prisons, and other such institutions, and other support services 
essential for patient care (e.g., laboratory technicians, medical 
examiner, or morgue staff) as well as employees of public health 
departments directly engaged in matters related to public health and 
related supervisory personnel. Human services staff include employees 
providing or administering social services; public benefits; child 
welfare services; and child, elder, or family care, as well as 
others.''
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    \243\ Note that this category encompasses both public health and 
health care employees; both are treated as public health employees 
for the purposes of this eligible use category.
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    Public Comment: Measuring Time Spent on COVID-19 Response: Treasury 
received public comments on several components of this eligible use 
category. Many commenters argued that it poses an administrative burden 
to identify the extent to which staff are responding to COVID-19 and to 
maintain records to support that assessment. Largely citing 
administrative burden in assessing eligibility, several commenters 
recommended revisions to the administrative convenience that the full 
payroll and covered benefits for public health and safety staff 
``primarily dedicated'' to responding to COVID-19 may be paid with 
SLFRF funds. Some commenters recommended presuming that all public 
health and safety staff are primarily dedicated to COVID-19 response, 
while others proposed that public health and safety workers who 
primarily serve QCTs or low- and moderate-income areas be presumed to 
be primarily dedicated to COVID-19 response, given the disproportionate 
impacts of the pandemic in those communities. Similarly, Tribal 
communities recommended that their public health staff be presumed 
eligible due to the disproportionate impact of the pandemic on their 
communities. Some commenters proposed that they be able to use the 
administrative convenience for staff outside of public health and 
safety that are responding to COVID-19 (i.e., to be able to pay the 
full payroll and covered benefits for any staff ``primarily dedicated'' 
to COVID-19 response).
    Treasury Response: In the final rule, Treasury is maintaining the 
approach in the interim final rule, including elaborations issued in 
further guidance, but providing additional clarification on its 
application, including methods to apply the approach to minimize 
administrative burden. Treasury notes that recipients may assess the 
extent to which staff are dedicated to responding to COVID-19 through a 
variety of means, including establishing presumptions or assessing 
public health and safety staff at the division or operating unit level. 
For example, a recipient could consider the amount of time spent by 
employees in its public health department's epidemiology division in 
responding to COVID-19 and, if a majority of its employees are 
dedicated to responding to COVID-19, determine that the entire division 
is primarily dedicated to responding to COVID-19. Treasury also 
clarifies that recipients may use reasonable estimates to establish 
administrable presumptions; for example, a recipient could estimate, 
based on discussions with staff, the general share of time that 
employees in a specific role or type of position spend on COVID-19 
related tasks and apply that share of time to all employees in that 
position.
    Recipients are generally required to be able to support uses of 
SLFRF funds as eligible, including, in this instance, maintenance of 
records to support an assessment that public health and safety staff 
are primarily dedicated to responding to COVID-19. As noted above, 
recipients may use reasonable estimates to implement this provision. 
Recipients should maintain records on how they developed these 
estimates and need not track staff hours. Treasury notes that records 
retained can include payroll records (e.g., the number and type of 
staff in various positions), attestations from supervisors or staff 
(e.g., self-attestation of share of time spent on COVID-19), or regular 
work product or correspondence (e.g., calendars, email correspondence, 
documents, and other electronic

[[Page 4385]]

records). Treasury anticipates that these types of records are 
generally retained in many government settings; recipients should also 
consult the Award Terms and Conditions for SLFRF funds for requirements 
on length of record retention. For example, a recipient could establish 
a reasonable presumption about the share of time that an employee, 
division, or operating unit is responding to COVID-19 and simply retain 
those employees' electronic records as a record to support their 
assessment.
    Public Comment: Public Health and Safety Staff Primarily Dedicated 
to COVID-19 Response: Some commenters recommended expanding the 
administrative convenience for public health and safety staff primarily 
dedicated to COVID-19 response to further types of staff, to all public 
health and safety staff, or to public health and safety staff serving 
underserved areas.
    Treasury Response: The interim final rule recognized that COVID-19 
response continues to require substantial staff resources and provides 
an administrative convenience to make it relatively simpler to identify 
the eligibility of the types of workers--public health and safety 
workers--generally most involved in COVID-19 response. At the same 
time, many public health and safety workers perform roles unrelated to 
COVID-19; coverage of all roles would be overbroad compared to the 
workers responding to COVID-19 in actuality. For this reason, the final 
rule maintains the interim final rule's approach to permitting SLFRF 
funds to be used for public health and safety staff primarily dedicated 
to responding to COVID-19. Finally, to the extent that a greater 
proportion of public health and safety staff time is needed to respond 
to COVID-19 in disproportionately impacted communities, the ``primarily 
dedicated'' approach recognizes this increased need.
    Public Comment: Eligible Types of COVID-19 Response: Some public 
commenters also sought further clarification on how to identify 
eligible types of ``COVID-19 response.'' For example, commenters 
requested clarification on delineating COVID-19 response from general 
public health response and defining COVID-19 response for public safety 
employees.
    Treasury Response: Treasury is clarifying that ``responding to'' 
COVID-19 entails work needed to respond to the public health or 
negative economic impacts of the pandemic, apart from the typical pre-
pandemic job duties or workload of an employee in a comparable role, if 
one existed. For example, responding to COVID-19 for a public safety 
worker may entail working in an emergency operations center to 
coordinate pandemic-related supply distribution, responding to an 
increased volume of 911 calls, or implementing COVID-19 prevention and 
mitigation protocols in a carceral setting.
    Public Comment: Eligible Employees: Some commenters requested 
clarification on the types of eligible employees or expansion of 
eligible employees to include additional types of staff, including in 
behavioral health; administrative, management, or financial management 
positions; social services; morgue staff; and nonprofit staff 
supporting projects to undertake eligible uses of funds under SLFRF.
    Treasury Response: Treasury provided further guidance on eligible 
types of employees following the interim final rule, which expressly 
included social services and morgue staff, and incorporates that 
guidance into the final rule. In addition, Treasury is clarifying that 
public health ``employees involved in providing medical and other 
health services to patients and supervisory personnel'' includes 
behavioral health services as well as physical health services.
    Treasury also is clarifying that this provision only addresses 
employees of the recipient government responding to COVID-19. For 
discussion of eligible expenses to administer SLFRF, including eligible 
costs for subrecipients performing eligible activities on behalf of a 
recipient government, see section Administrative Expenses in Program 
Administration Provisions.
    Finally, Treasury is clarifying that indirect costs for 
administrative, management, and financial management personnel to 
support public health and safety staff responding to COVID-19 are not 
permissible under this provision, given the relatively greater 
challenge of differentiating the marginal increase in staff time and 
workload due to pandemic response for indirect versus direct costs.
    Public Comment: Time Period: Finally, some commenters made 
recommendations on the time period during which this eligible use 
should be available. Some commenters recommended eligibility begin 
before March 3, 2021, the period when Treasury's interim final rule 
permitted recipients to begin to incur costs using SLFRF funds; for 
discussion of this topic, see section Timeline for Use of SLFRF Funds 
in Program Administration Provisions. As noted above, Treasury also 
posed a question in the interim final rule asking for how long Treasury 
should maintain the administrative convenience that SLFRF funds may be 
used for the full payroll and covered benefits of public health and 
safety staff primarily dedicated to COVID-19 response. Several 
commenters recommended that Treasury maintain this approach throughout 
the program or through December 31, 2024. Other commenters requested 
clarification on whether eligibility for this use of funds was tied to 
the length of the state of emergency or whether a jurisdiction has an 
active state of emergency.
    Treasury Response: In the final rule, Treasury is clarifying that 
recipients will be permitted to fund the full payroll and covered 
benefits of public health and safety staff primarily dedicated to 
COVID-19 response throughout the period of performance for the SLFRF 
program, though recipients should periodically reassess their 
determination of primarily dedicated staff, including as the public 
health emergency and response evolves.
Government Employment and Rehiring Public Sector Staff
    The interim final rule permitted use of funds for costs associated 
with rehiring state, local, and Tribal government staff in order to 
bolster the government's ability to effectively administer services. 
Specifically, recipients may pay for payroll, covered benefits, and 
other costs associated with the recipient increasing the number of its 
employees up to the pre-pandemic baseline, or the number of employees 
that the recipient government employed on January 27, 2020.
    Public Comment: Many commenters requested greater flexibility and 
additional clarification on the provision's requirements, including the 
pre-pandemic baseline and re-hiring process. Some commenters requested 
that the final rule allow for hiring above the pre-pandemic baseline 
given historic underinvestment in the public sector workforce. 
Commenters suggested a number of adjustments to the pre-pandemic 
baseline, including adjusting based on population or revenue growth, 
while some recommended allowing recipients to set their own hiring 
levels. Others requested clarification on the definition of the 
baseline and the re-hiring process, including whether the pre-pandemic 
baseline referred to budgeted or filled positions and whether new hires 
had to fill the same roles as the previous hires. Commenters also asked 
whether recipients need to show if the reduction in number of employees 
was due to the pandemic in order to qualify for funding and requested 
that workers dedicated to

[[Page 4386]]

COVID-19 response be exempted from the calculation of number of 
employees.
    Many commenters also requested an expanded set of eligible uses 
beyond restoring their workforce up to the pre-pandemic baseline. 
Commenters requested that funding be able to be used to avoid layoffs, 
provide back pay, retain employees through pay increases and other 
retention programs, or reimburse salaries and benefits already paid. 
Some commenters also requested clarification as to whether recipients 
can fund re-hired positions through the period of performance and on 
the definition of payroll and benefits. Other commenters requested 
preferential hiring for workers laid off, a strong commitment to 
equity, and a requirement that funds would not be used to pay for 
contract or temporary replacement workers during a labor dispute.
    Treasury Response: The final rule allows for an expanded set of 
eligible uses to restore and support public sector employment. Eligible 
uses include hiring up to a pre-pandemic baseline that is adjusted for 
historic underinvestment in the public sector, providing additional 
funds for employees who experienced pay cuts or were furloughed, 
avoiding layoffs, providing worker retention incentives, and paying for 
ancillary administrative costs related to hiring.
    Restoring pre-pandemic employment. In response to comments and 
recognizing underinvestment in public sector employment, the final rule 
expands the ability to use SLFRF funds to restore pre-pandemic 
employment. Treasury is also clarifying how, and the extent to which, 
recipients may use SLFRF funds to rehire public employees.
    The final rule provides two options to restore pre-pandemic 
employment, depending on recipient's needs. Under the first and simpler 
option, recipients may use SLFRF funds to rehire staff for pre-pandemic 
positions that were unfilled or were eliminated due the pandemic 
without undergoing further analysis. Under the second option, the final 
rule provides recipients an option to hire above the pre-pandemic 
baseline, by adjusting the pre-pandemic baseline for historical growth 
in public sector employment over time, as well as flexibility on roles 
for hire. Recipients may choose between these options but cannot use 
both.
    To pursue the first option, recipients may use SLFRF funds to hire 
employees for the same positions that existed on January 27, 2020 but 
that were unfilled or eliminated as of March 3, 2021, without 
undergoing further analysis. For these employees, recipients may use 
SLFRF funds for payroll and covered benefit costs that are obligated by 
December 31, 2024 and expended by December 31, 2026, consistent with 
the Uniform Guidance's Cost Principles at 2 CFR part 200 Subpart E. 
This option provides administrative simplicity for recipients that 
would simply like to restore pre-pandemic positions and would not like 
to hire above the pre-pandemic baseline.
    To pursue the second option, recipients should undergo the analysis 
provided below. In short, this option allows recipients to pay for 
payroll and covered benefits associated with the recipient increasing 
its number of budgeted full-time equivalent employees (FTEs) up to 7.5 
percent above its pre-pandemic employment baseline, which adjusts for 
the continued underinvestment in state and local governments since the 
Great Recession. State and local government employment as a share of 
population in 2019 remained considerably below its share prior to the 
Great Recession in 2007, which presented major risks to recipients 
mounting a response to the COVID-19 public health emergency. The 
adjustment factor of 7.5 percent results from estimating how much 
larger 2019 state and local government employment would have needed to 
be for the share of state and local government employment to population 
in 2019 to have been back at its 2007 level and is intended to correct 
for this gap.
    Recipients should complete the steps described below. Recipients 
may choose whether to conduct this analysis on a government-wide basis 
or for an individual department, agency, or authority.
    <bullet> Step One: Identify the recipient's budgeted FTE level on 
January 27, 2020. This includes all budgeted positions, filled and 
unfilled. This is called the pre-pandemic baseline.
    <bullet> Step Two: Multiply the pre-pandemic baseline by 1.075 
(that is, 1 + adjustment factor). This is called the adjusted pre-
pandemic baseline.
    <bullet> Step Three: Identify the recipient's budgeted FTE level on 
March 3, 2021, which is the beginning of the period of performance for 
SLFRF funds. Recipients may, but are not required to, exclude FTEs 
dedicated to responding to the COVID-19 public health emergency.\244\ 
This is called the actual number of FTEs.
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    \244\ Recipients may determine that a portion of an FTE's time 
is dedicated to responding to the COVID-19 public health emergency. 
Further, for administrative convenience, the recipient may consider 
public health and safety FTEs to be entirely devoted to mitigating 
or responding to the COVID-19 public health emergency if the FTE, or 
his or her operating unit of division, is primarily dedicated to 
responding to the COVID-19 public health emergency. Recipients may 
also consider other presumptions for assessing the extent to which 
an FTE, division, or operating unit is engaged in activities that 
respond to the COVID-19 public health emergency, provided that the 
recipient reassesses periodically and maintains records to support 
its assessment, such as payroll records, attestations from 
supervisors or staff, or regular work product or correspondence 
demonstrating work on the COVID-19 response.
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    <bullet> Step Four: Subtract the actual number of FTEs from the 
adjusted pre-pandemic baseline to calculate the number of FTEs that can 
be hired and covered by SLFRF funds.
    Recipients may use SLFRF funds to cover payroll and covered benefit 
costs obligated by December 31, 2024, and expended by December 31, 
2026, up to the number of FTEs calculated in Step Four, consistent with 
the Uniform Guidance's Cost Principles at 2 CFR part 200 Subpart E. 
Recipients may only use SLFRF funds for additional FTEs hired over the 
March 3, 2021 level of budgeted FTEs (i.e., the actual number of FTEs); 
note again that recipients may choose whether to conduct the analysis 
of FTEs that can be covered by SLFRF funds on a government-wide basis 
or for an individual department, agency, or authority.
    These FTEs must have begun their employment on or after March 3, 
2021, which is the beginning of the period of performance. For 
administrative convenience, recipients do not need to demonstrate that 
the reduction in number of FTEs was due to the COVID-19 pandemic, as 
Treasury assumes the vast majority of employment reductions during this 
time were due to pandemic fiscal pressures on state and local budgets. 
Recipients do not need to hire for the same roles that existed pre-
pandemic.
    For illustration, consider a hypothetical recipient with 1,000 
budgeted FTEs on January 27, 2020 (950 filled FTE positions and 50 
unfilled FTE positions). The recipient's pre-pandemic baseline is 1000 
FTEs; its adjusted pre-pandemic baseline is 1,000 * 1.075 = 1075 FTEs. 
Now, assume that on March 3, 2021, the recipient had 800 budgeted FTEs 
in total (795 filled FTE positions and 5 unfilled FTE positions), with 
50 FTEs primarily dedicated to responding to the COVID-19 public health 
emergency. The recipient would have the option of using either 800 FTEs 
or 750 FTEs as its actual number of FTEs for the calculation; assuming 
it chooses the lower number, it would be able to fund up to 325 FTEs 
with SLFRF funds (that is, 1,075-750 = 325 FTEs).

[[Page 4387]]

Specifically, the recipient would be able to use SLFRF to fund payroll 
and covered benefits for up to 325 FTEs that begin their employment on 
or after March 3, 2021, for costs obligated by December 31, 2024, and 
expended by December 31, 2026, consistent with the Uniform Guidance's 
Cost Principles, as long as SLFRF funds are used for additional FTEs 
hired over the recipient's 750 FTE level (which is its March 3, 2021 
budgeted FTE level).
    In hiring new employees, the final rule encourages recipients to 
ensure a diverse workforce. The final rule also prohibits recipients 
from using funds to temporarily fill positions during a labor dispute, 
as this would not constitute responding to the public health or 
negative economic impacts of the pandemic. Further, recipients must 
ensure that its hiring practices do not violate conflict-of-interest 
policies.\245\ Total compensation for a hired employee that is 
substantially in excess of typical compensation for employees of their 
experience and tenure within the recipient's government, without a 
corresponding business case, may indicate a potential conflict-of-
interest in fact or appearance.
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    \245\ As part of accepting the Award Terms and Conditions for 
SLFRF, each recipient agreed to maintain a conflict-of-interest 
policy consistent with 2 CFR 200.318(c)112 that is applicable to all 
activities funded with the SLFRF award. Pursuant to this policy, 
decisions concerning SLFRF must be free of undisclosed personal or 
organizational conflicts of interest, both in fact and in 
appearance. A recipient may not use control over SLFRF for their own 
private gain. Furthermore, no employee, officer, or agent may 
participate in the selection, award, or administration of a contract 
supported by a federal award if he or she has a real or apparent 
conflict of interest.
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    Providing additional funding for employees who experienced pay cuts 
and furloughs. In recognition of the economic hardship caused by pay 
cuts and furloughs, additional funds may be provided to employees who 
experienced pay cuts or were furloughed since the onset of the pandemic 
on January 27, 2020. Recipients must be able to substantiate that the 
pay cut or furlough was substantially due to the public health 
emergency or its negative economic impacts (e.g., fiscal pressures on 
state and local budgets) and should document their assessment. As a 
reminder, this additional funding must be reasonably proportional to 
the negative economic impact of the pay cut or furlough on the 
employee, which would include taking into account unemployment 
insurance (UI) benefits that a furloughed employee may have received 
during the furloughed period. Treasury presumes that additional funds 
beyond the difference in pay had the employee not received a pay cut or 
been furloughed would not be reasonably proportional.
    Recipients may also provide premium pay to certain employees, as 
detailed further in section Premium Pay.
    Avoiding layoffs. Funds may be used to maintain current 
compensation levels, with adjustments for inflation, in order to 
prevent layoffs that would otherwise be necessary. Recipients must be 
able to substantiate that layoffs were likely in the absence of SLFRF 
funds and would be substantially due to the public health emergency or 
its negative economic impacts (e.g., fiscal pressures on state and 
local budgets) and should document their assessment.
    Retaining workers. Funds may be used to provide worker retention 
incentives, which are designed to persuade employees to remain with the 
employer as compared to other employment options. Recipients must be 
able to substantiate that the employees were likely to leave employment 
in the absence of the retention incentive and should document their 
assessment. For example, a recipient may determine that a retention 
bonus is necessary based on the presence of an alternative employment 
offer for an employee.
    All worker retention incentives must be narrowly tailored to need 
and should not exceed incentives traditionally offered by the recipient 
or compensation that alternative employers may offer to compete for the 
employees. Further, because retention incentives are intended to 
provide additional incentive to remain with the employer, they must be 
entirely additive to an employee's regular rate of wages and other 
remuneration and may not be used to reduce or substitute for an 
employee's normal earnings. Treasury will presume that retention 
incentives that are less than 25 percent of the rate of base pay for an 
individual employee or 10 percent for a group or category of employees 
are reasonably proportional to the need to retain employees, as long as 
the other requirements are met.
    Ancillary administrative costs. Funds may be used to pay for 
ancillary administrative costs associated with administering SLFRF-
funded hiring and retention programs detailed above, including costs to 
publish job postings, review applications, and onboard and train new 
hires. For additional information on administrative expenses, see 
section Administrative Expenses in Program Administration Provisions.
Effective Service Delivery: Administrative Expenses
    The interim final rule provided that funds could be used for: 
``Expenses to improve efficacy of public health or economic relief 
programs: Administrative costs associated with the recipient's COVID-19 
public health emergency assistance programs, including services 
responding to the COVID-19 public health emergency or its negative 
economic impacts, that are not federally funded.'' In the final rule, 
Treasury is clarifying that there are several categories of eligible 
administrative expenses.
    First, recipients may use funds for administrative costs to improve 
the efficacy of public health or economic relief programs through tools 
like program evaluation, data analysis, and targeted consumer outreach 
(see section Effective Service Delivery: Program Evaluation, Data, and 
Outreach).
    Second, recipients may use funds for administrative costs 
associated with programs to respond to the public health emergency and 
its negative economic impacts, including programs that are not funded 
by SLFRF or not federally funded. In other words, Treasury recognizes 
that responding to the public health and economic impacts of the 
pandemic requires many programs and activities, some of which are not 
funded by SLFRF. Executing these programs effectively is a component of 
responding to the public health and negative economic impacts of the 
pandemic.
    Finally, recipients may use funds for direct and indirect 
administrative costs for administering the SLFRF program and projects 
funded by the SLFRF program. See section Administrative Expenses in 
Program Administration Provisions for details on this eligible use 
category.
Effective Service Delivery: Program Evaluation, Data, and Outreach
    The Supplementary Information of the interim final rule provided 
that state, local and Tribal governments may use SLFRF funds to improve 
the design and execution of programs responding to the COVID-19 
pandemic and to improve the efficacy of programs addressing negative 
economic impacts. The interim final rule included high-level guidance 
about how SLFRF funds could be used in this eligible use category, 
including the use of targeted consumer outreach, improvements to data 
or technology infrastructure, impact evaluations, and data analysis.
    Since the publication of the interim final rule, Treasury has also 
released

[[Page 4388]]

supplementary information on data analysis, evidence building, and 
program evaluation in the Compliance and Reporting Guidance.
    Public Comment: Treasury received positive comments about the 
opportunity to invest in data and technology upgrades with SLFRF funds. 
For example, one commenter noted that investing in technology for 
better connectivity, coupled with software and hardware upgrades, will 
allow the workforce to be more productive. Treasury also received 
comments seeking clarification on using funds for investments in data 
and technology, including whether upgrading government websites to 
improve community outreach and investing in technologies that support 
social distancing were eligible uses.
    Treasury Response: Governments with high capacity to use data and 
evidence to administer programs are more likely to be responsive to the 
needs of their community, more transparent about their community 
impact, and more resilient to emergencies such as the pandemic and its 
economic impacts.\246\ Treasury recognizes that collecting high-quality 
data and developing community-driven, evidence-based programs requires 
resources to hire and build the capacity of staff, adopt new processes 
and systems, and use new technology and tools in order to effectively 
develop, execute, and evaluate programs. As such, Treasury is 
clarifying that recipients may use SLFRF funds toward the following 
non-exhaustive list of uses to address the data, evidence, and program 
administration needs of recipients. Additional information may be 
provided in the Compliance and Reporting Guidance.
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    \246\ Results for America, Invest in What Works State Standard 
of Excellence (August 2020), https://2020state.results4america.org/2020_State-Standard-of-Excellence.pdf.
---------------------------------------------------------------------------

    <bullet> Program evaluation and evidence resources to support 
building and using evidence to improve outcomes, including development 
of Learning Agendas \247\ to support strategic evidence building, 
selection of evidence-based interventions, and program evaluations 
including impact evaluations (randomized control trials and quasi-
experimental designs) as well as rapid-cycle evaluations, process or 
implementation evaluations, outcome evaluations, and cost-benefit 
analyses. Recipients are encouraged to undertake rigorous program 
evaluations when practicable, assess the impact of their programs by 
beneficiary demographics (including race, ethnicity, gender, income, 
and other relevant factors), and engage with community stakeholders 
(including intended beneficiaries) when developing Learning Agendas and 
designing evaluations to ensure that programmatic, cultural, 
linguistic, and historical nuances are accurately and respectfully 
addressed.
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    \247\ Learning Agendas are systematic plans to identify, 
prioritize, answer important questions about programs and policies 
using analytic techniques that are appropriate to the type of 
question asked. For more information on learning agendas, please see 
OMB Memorandum M-19-23, available at: https://www.whitehouse.gov/wp-content/uploads/2019/07/M-19-23.pdf and OMB Memorandum M-21-27, 
available at: https://www.whitehouse.gov/wp-content/uploads/2021/06/M-21-27.pdf.
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    Recipients are also encouraged to use relevant evidence 
Clearinghouses,\248\ among other sources, to assess the level of 
evidence for their interventions and identify evidence-based models 
that could be applied in their jurisdiction (meaning models with strong 
or moderate evidence; see Compliance and Reporting Guidance for details 
on these terms).
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    \248\ Evidence Clearinghouses are databases of research in 
particular program areas. Frequently these Clearinghouses identify 
evidence-based programs, the strength of the evidence for those 
programs, and provide contextual or supporting information in easy 
to understand formats. Many federal departments have developed 
rigorous and helpful Clearinghouses that cover a wide range of uses 
enumerated in this final rule as well as other programs that may be 
responsive to public health or negative economic impacts of the 
pandemic. For more information on Clearinghouses, please see the 
Compliance and Reporting Guidance: U.S. Department of the Treasury, 
Recipient Compliance and Reporting Responsibilities, as of November 
5, 2021; https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/recipient-compliance-and-reporting-responsibilities.
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    <bullet> Data analysis resources to gather, assess, and use data 
for effective policy-making and real-time tracking of program 
performance to support effective implementation of SLFRF-funded 
programs and programs that respond to the public health emergency and 
its negative economic impacts, or which households, small businesses, 
or impacted industries are accessing during the pandemic that are 
funded by other sources. These resources include but are not limited to 
data gathering, data cleaning, data analysis, data infrastructure, data 
management, data sharing, data transparency, performance management, 
outcomes-based budgeting, outcomes-based procurement, and other data 
needs. Treasury encourages the disaggregation of data to identify 
disparate program impacts and the use of cross-jurisdictional data 
sharing to better measure and implement government programs.
    <bullet> Technology infrastructure resources to improve access to 
and the user-experience of government information technology systems, 
including upgrades to hardware and software as well as improvements to 
public-facing websites or to data management systems, to increase 
public access and improve public delivery of government programs and 
services (including in the judicial, legislative, or executive 
branches).
    <bullet> Community outreach and engagement resources to support the 
gathering and sharing of information in ways that improve equity and 
effective implementation of SLFRF-funded programs and programs that 
respond to the public health emergency and its negative economic 
impacts, or which households, small businesses, or impacted industries 
are accessing during the pandemic that are funded by other sources. 
These methods include but are not limited to community meetings, online 
surveys, focus groups, human-centered design activities, behavioral 
science techniques, and other community engagement tools.
    <bullet> Capacity building resources to support using data and 
evidence in designing, executing, and evaluating programs, including 
hiring public sector staff, contractors, academics, consultants, and 
others with expertise in evaluation, data, technology, and community 
engagement as well as technical assistance support for public sector 
staff, staff of subrecipients, and community partners to support 
effective implementation of SLFRF-funded programs and programs that 
respond to the public health emergency and its negative economic 
impacts, or which households, small businesses, or impacted industries 
are accessing during the pandemic that are funded by other sources.
Administrative Needs Caused or Exacerbated by the Pandemic
    As described in guidance and the interim final rule, SLFRF funds 
may be used to address administrative needs of recipient governments 
that were caused or exacerbated by the pandemic. Guidance following the 
interim final rule included several examples of this, for example, uses 
of funds to address backlogs resulting from pandemic-related shutdowns 
(e.g., backlogs in court systems).\249\ This also includes

[[Page 4389]]

using funds for increased repair or maintenance needs to respond to 
significantly greater use of public facilities during the pandemic 
(e.g., increased use of parks resulting in damage or increased need for 
maintenance). Some commenters expressed support for the ability to use 
funds for these purposes. Treasury is maintaining these enumerated 
eligible uses in the final rule and clarifying that capital 
expenditures such as technology infrastructure to adapt government 
operations to the pandemic (e.g., video-conferencing software, 
improvements to case management systems or data sharing resources), 
reduce government backlogs, or meet increased maintenance needs are 
eligible.
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    \249\ See FAQ 2.19. Coronavirus State and Local Fiscal Recovery 
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf. In the case of 
courts specifically, this includes ``implementing COVID-19 safety 
measures to facilitate court operations, hiring additional court 
staff or attorneys to increase speed of case resolution, and other 
expenses to expedite case resolution are eligible uses.''
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b. Capital Expenditures
    The interim final rule expressly permitted use of funds for a 
limited number of capital expenditures that mostly pertained to COVID-
19 prevention and mitigation. These included capital investments in 
public facilities to meet pandemic operational needs, such as physical 
plant improvements to public hospitals and health clinics; adaptations 
to public buildings to implement COVID-19 mitigation tactics; 
ventilation improvements in congregate settings, health care settings, 
or other key locations; assistance to small businesses and nonprofits 
and aid to impacted industries to implement COVID-19 prevention or 
mitigation tactics, such as physical plant changes to enable social 
distancing. For disproportionately impacted populations and 
communities, the interim final rule also expressly permitted 
development of affordable housing to increase the supply of affordable 
and high-quality living units.
    Public Comment: Many commenters supported the interim final rule's 
allowance of capital expenditures in facilities to meet pandemic 
operational needs but requested that the final rule explicitly allow 
for a broader range of capital expenditures. Commenters expressed an 
interest in investing in equipment, real property, and facilities that 
they argued will yield lasting benefits beyond the SLFRF period of 
performance. Some commenters stated that the approach in the interim 
final rule limited the vast majority of capital expenditures to 
governments that experienced revenue loss under Sections 602(c)(1)(C) 
and 603(c)(1)(C) and that this approach may prevent some governments 
from fully meeting the needs of their residents. A few commenters 
argued that Treasury should limit use of funds on capital expenditures 
not related to addressing a direct pandemic harm, such as general 
economic development or workforce development, and some expressed 
support for generally limiting capital expenditures to those that 
address the needs of low-income communities and communities of color.
    Many commenters requested that capital expenditures related to 
direct COVID-19 public health response be included as enumerated 
eligible uses. The requested types of expenditures include improvements 
and construction of hospitals and health clinics (including behavioral 
health clinics), as well as other health-related infrastructure 
improvements, such as improvements to medical equipment or public 
health information technology. These commenters stated that investments 
in health and public health systems are vital to ensuring critical 
infrastructure necessary to respond to continued impacts of COVID-19 or 
to address disparities in health, due to lack of access to health care, 
that contributed to disproportionate impacts of COVID-19 on some 
communities. Further, some commenters requested that construction or 
improvements of emergency management and public safety facilities be 
deemed eligible, citing that some of these sites serve as remote 
vaccination sites or are otherwise crucial to the pandemic public 
health response.
    Commenters also requested use of funds for capital expenditures 
that support community needs apart from health care, such as new 
construction or improvements to schools, affordable housing (beyond 
presumed disproportionately impacted communities), childcare 
facilities, and community centers; some suggested that all types of 
projects permissible under the Community Development Block Grant 
Program should be eligible both for policy and administrability 
reasons. Further, some commenters also asked for clarification as to 
whether parks and recreational facilities are eligible if built in 
certain disproportionately impacted areas, as well as public 
transportation infrastructure.
    Finally, some commenters also requested use of funds for capital 
expenditures in government administration buildings, such as public 
courthouses, as well as technology infrastructure that would allow for 
remote delivery of public benefits. Others also asked about whether 
funds could be used to renovate vacant business district buildings or 
commercial spaces to spur economic recovery.
    Treasury Response: Capital expenditures, in certain cases, can be 
appropriate responses to the public health and economic impacts of the 
pandemic, in addition to programs and services. Like other eligible 
uses of SLFRF funds in this category, capital expenditures should be a 
related and reasonably proportional response to a public health or 
negative economic impact of the pandemic. The final rule clarifies and 
expands how SLFRF funds may be used for certain capital expenditures, 
including criteria and documentation requirements specified in this 
section, as applicable.
    Treasury provides presumptions and guidelines for capital 
expenditures that are enumerated earlier in sections Public Health, 
Negative Economic Impacts, and General Provisions: Other under the 
Public Health and Negative Economic Impact eligible use category 
(``enumerated projects''), along with capital expenditures beyond those 
enumerated by Treasury. In addition to satisfying the two-part 
framework in Standards: Designating a Public Health Impact and 
Standards: Designating a Negative Economic Impact for identifying and 
designing a response to a pandemic harm, Treasury will require projects 
with total expected capital expenditure costs of $1 million or greater 
to undergo additional analysis to justify their capital expenditure. 
Increased reporting requirements will be required for projects that are 
larger in size, as well as projects that are not enumerated as eligible 
by Treasury, with certain exceptions for Tribal governments discussed 
below. Smaller projects with total expected capital expenditures below 
$1 million will not be required to undergo additional analysis to 
justify their capital expenditure, as such projects will be presumed to 
be reasonably proportional, provided that they are responding to a harm 
caused or exacerbated by the public health emergency. These standards 
and documentation requirements are designed to minimize administrative 
burden while also ensuring that projects are reasonably proportional 
and supporting Treasury's risk-based approach to overall program 
management and monitoring.
    This section provides (1) an overview of general standards 
governing capital expenditures; (2) presumptions on capital 
expenditures, which help guide recipients in determining whether the 
expenditure meets the standards and the associated documentation 
requirements; and (3) additional standards and requirements that may 
apply.

[[Page 4390]]

Overview of General Standards
    In considering whether a capital expenditure would be eligible 
under the public health and negative economic impacts eligible use 
category, recipients must satisfy the requirements for all uses under 
the public health and negative economic impacts eligible use category, 
including identifying an impact or harm and designing a response that 
addresses or responds to the identified impact or harm. Responses must 
be reasonably designed to benefit the individual or class that 
experienced the impact or harm and must be related and reasonably 
proportional to the extent and type of impact or harm. Recipients 
should consult further details on this standard provided in the 
sections Standards: Designating a Public Health Impact and Standards: 
Designating a Negative Economic Impact under General Provisions: 
Structure and Standards.
    In addition to the framework described above, for projects with 
total expected capital expenditures of $1 million or greater, 
recipients must complete and meet the substantive requirements of a 
Written Justification for their capital expenditure, except for Tribal 
governments as discussed below. This Written Justification helps 
clarify the application of this interpretive framework to capital 
expenditures, while recognizing that the needs of communities differ. 
In particular, this justification reflects the fact that the time 
required for a large construction project may make capital expenditures 
less responsive to pandemic-related needs relative to other types of 
responses. In addition, as discussed in section Timeline for Use of 
SLFRF Funds of this Supplemental Information, SLFRF funds must be 
obligated by December 31, 2024 and expended by December 31, 2026. 
Capital expenditures may involve long lead-times, and the Written 
Justification may support recipients in analyzing proposed capital 
expenditures to confirm that they conform to the obligation and 
expenditure timing requirements. Further, such large projects may be 
less likely to be reasonably proportional to the harm identified. For 
example, construction of a new, larger public facility for the purpose 
of increasing the ability to socially distance generally would not be 
considered a reasonably proportional response compared to other less 
time- and resource-intensive options that may be available and would be 
equally or more effective. Other solutions, such as improvements in 
ventilation, could be made more quickly and are typically more cost 
effective than construction of a new, larger facility. The needs of 
communities differ, and recipients are responsible for identifying uses 
of SLFRF funds that best respond to these needs. The Written 
Justification recognizes this while also establishing consistent 
documentation and reporting to support monitoring and compliance with 
the ARPA and final rule. Finally, the Written Justification also 
reflects the fact that infrastructure projects are generally not within 
scope of this eligible use category. See section Uses Outside the Scope 
of this Category in General Provisions: Other.
    As noted above, Tribal governments are not required to complete the 
Written Justification for projects with total capital expenditures of 
$1 million or greater. Tribal governments generally have limited 
administrative capacity due to their small size and corresponding 
limited ability to supplement staffing for short-term programs. In 
addition, Tribal governments are already subject to unique 
considerations that require additional administrative processes and 
administrative burden for Tribal government decision making, including 
capital expenditures. Tribal governments generally are subject to a 
jurisdictionally complex sets of rules and regulations in the case of 
improvements to land for which the title is held in trust by the United 
States for a Tribe (Tribal Trust Lands).\250\ This includes the 
requirement in certain circumstances to seek the input or approval of 
one or more federal agencies such the Department of the Interior, which 
holds fee title of Tribal Trust Lands.
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    \250\ See 25 U.S.C. 5108.
---------------------------------------------------------------------------

    As a result of their limited administrative capacity and unique and 
complex rules and regulations applicable to Tribal governments 
operating on Tribal Trust Lands, Tribal governments would experience 
significant and redundant administrative burden by also being required 
to complete a Written Justification for applicable capital 
expenditures. While Tribal governments are not required to complete the 
Written Justification for applicable capital expenditures, the 
associated substantive requirements continue to apply, including the 
requirement that a capital expenditure must be reasonably designed to 
benefit the individual or class that experienced the identified impact 
or harm and must be related and reasonably proportional to the extent 
and type of impact or harm. Note that, as a general matter, Treasury 
may also request further information on SLFRF expenditures and 
projects, including capital expenditures, as part of the regular SLFRF 
reporting and compliance process, including to assess their eligibility 
under the final rule.
    The Written Justification should (1) describe the harm or need to 
be addressed; (2) explain why a capital expenditure is appropriate to 
address the harm or need; and (3) compare the proposed capital 
expenditure against alternative capital expenditures that could be 
made. The information required for the Written Justification reflects 
the framework applicable to all uses under the public health and 
negative economic impacts eligible use category, providing 
justification for the reasonable design, relatedness, and reasonable 
proportionality of the capital expenditure in response to the harm or 
impact identified.
    1. Description of harm or need to be addressed: Recipients should 
provide a description of the specific harm or need to be addressed, and 
why the harm was exacerbated or caused by the public health emergency. 
When appropriate, recipients may provide quantitative information on 
the extent and type of the harm, such as the number of individuals or 
entities affected.
    2. Explanation of why a capital expenditure is appropriate: 
Recipients should provide an independent assessment demonstrating why a 
capital expenditure is appropriate to address the specified harm or 
need. This should include an explanation of why existing capital 
equipment, property, or facilities would be inadequate to addressing 
the harm or need and why policy changes or additional funding to 
pertinent programs or services would be insufficient without the 
corresponding capital expenditures. Recipients are not required to 
demonstrate that the harm or need would be irremediable but for the 
additional capital expenditure; rather, they may show that other 
interventions would be inefficient, costly, or otherwise not reasonably 
designed to remedy the harm without additional capital expenditure.
    3. Comparison of the proposed capital expenditure against 
alternative capital expenditures: Recipients should provide an 
objective comparison of the proposed capital expenditure against at 
least two alternative capital expenditures and demonstrate why their 
proposed capital expenditure is superior to alternative capital 
expenditures that could be made. Specifically, recipients should assess 
the proposed capital expenditure against at least two alternative types 
or sizes of capital expenditures that are potentially effective and 
reasonably

[[Page 4391]]

feasible. Where relevant, recipients should compare the proposal 
against the alternative of improving existing capital assets already 
owned or leasing other capital assets. Recipients should use 
quantitative data when available, although they are encouraged to 
supplement with qualitative information and narrative description. 
Recipients that complete analyses with minimal or no quantitative data 
should provide an explanation for doing so.
    In determining whether their proposed capital expenditure is 
superior to alternative capital expenditures, recipients should 
consider the following factors against each selected alternative.
    a. A comparison of the effectiveness of the capital expenditures in 
addressing the harm identified. Recipients should generally consider 
the effectiveness of the capital expenditures in addressing the harm 
over the useful life of the capital asset and may consider metrics such 
as the number of impacted or disproportionately impacted individuals or 
entities served, when such individuals or entities are estimated to be 
served, the relative time horizons of the project, and consideration of 
any uncertainties or risks involved with the capital expenditure.
    b. A comparison of the expected total cost of the capital 
expenditures. Recipients should consider the expected total cost of the 
capital expenditure required to construct, purchase, install, or 
improve the capital assets intended to address the public health or 
negative economic impact of the public health emergency. Recipients 
should include pre-development costs in their calculation and may 
choose to include information on ongoing operational costs, although 
this information is not required.
    Recipients should balance the effectiveness and costs of the 
proposed capital expenditure against alternatives and demonstrate that 
their proposed capital expenditure is superior. Further, recipients 
should choose the most cost-effective option unless it substantively 
reduces the effectiveness of the capital investment in addressing the 
harm identified.
    As an example, a recipient considering building a new diagnostic 
testing laboratory to enhance COVID-19 testing capacity may consider 
whether existing laboratories sufficiently meet demand for COVID-19 
testing, considering the demand for test results (along with their 
turnaround time) as well as the impact of current testing availability 
on the spread of COVID-19. Recipients may also consider other public 
health impacts of the level of diagnostic testing capacity, for example 
if insufficient capacity has decreased testing for other health 
conditions. The recipient may consider alternatives such as expanding 
existing laboratories or building a laboratory of a different size. In 
comparing the effectiveness of the capital expenditures, examples of 
factors that the recipient may consider include when the facilities 
will become operational and for how long; the daily throughput of 
COVID-19 tests; and the effect on minimizing delays in test results on 
the populations that such tests will serve. In comparing costs, the 
recipient may compare the total expected cost of the new laboratory 
(including costs of acquisition of real property, construction of the 
laboratory, and purchase of any necessary equipment needed to 
operationalize the lab), against the expected costs of expanding 
existing laboratories (whether by replacing current equipment with 
higher throughout devices or physically expanding space to accommodate 
additional capacity) or building a new laboratory of a different size, 
including by leasing property. As a reminder, recipients should only 
consider alternatives that are potentially effective and reasonably 
feasible.
    Because, in all cases, uses of SLFRF funds to respond to public 
health and negative economic impacts of the pandemic must be related 
and reasonably proportional to a harm caused or exacerbated by the 
pandemic, some capital expenditures may not eligible. For example, 
constructing a new correctional facility would generally not be a 
proportional response to an increase in the rate of certain crimes or 
overall crime as most correctional facilities have historically 
accommodated fluctuations in occupancy.\251\ In addition, construction 
of new congregate facilities, which would generally be expected to 
involve expenditures greater than $1 million, would generally not be a 
proportional response to mitigate or prevent COVID-19, because such 
construction is generally expected to be more costly than alternative 
approaches or capital expenditures that may be equally or more 
effective in decreasing spread of the disease.\252\ These alternatives 
include personal protective equipment, ventilation improvements, 
utilizing excess capacity in other facilities or wings, or temporary 
facility capacity expansions.
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    \251\ See, e.g., ``Economic Perspectives on Incarceration and 
the Criminal Justice System,'' Council of Economic Advisers (April 
2016), pg. 36-43.
    \252\ For instance, the CDC has published detailed 
recommendations for nursing homes, long-term care facilities, and 
correctional and detention facilities, on infection prevention and 
control. Many of these recommendations are relatively low cost, such 
as proper use of PPE. In addition, increasing vaccination rates 
among nursing home staff is among the most important ways to 
decrease the spread of the disease. Centers for Disease Control and 
Prevention, Interim Infection Prevention and Control Recommendations 
to Prevent SARS-CoV-2 Spread in Nursing Homes (September 10, 2021), 
https://www.cdc.gov/coronavirus/2019-ncov/hcp/long-term-care.html#anchor_1631030153017.
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    Large capital expenditures intended for general economic 
development or to aid the travel, tourism, and hospitality industries--
such as convention centers and stadiums--are, on balance, generally not 
reasonably proportional to addressing the negative economic impacts of 
the pandemic, as the efficacy of a large capital expenditure intended 
for general economic development in remedying pandemic harms may be 
very limited compared to its cost.\253\
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    \253\ For instance, researchers have found no consistent 
positive relationship between building sports facilities and local 
economic development. As Siegfried and Zimbalist (2000, 103) write 
in a review of the literature, ``independent work on the economic 
impact of stadiums and arenas has uniformly found that there is no 
statistically significant positive correlation between sports 
facility construction and economic development.'' John Siegfried and 
Andrew Zimbalist, The Economics of Sports Facilities and Their 
Communities, Journal of Economic Perspectives 14, no. 3 (Summer 
2000): 95-114, https://www.aeaweb.org/articles?id=10.1257/jep.14.3.95.
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Presumptions on Capital Expenditures
    For administrative convenience, the final rule provides 
presumptions on whether a Written Justification is required--and 
required to be submitted to Treasury through reporting--based on the 
type and size of the capital expenditure, as detailed in the table 
below.
    As discussed above, Tribal governments are not required to complete 
the Written Justification for applicable capital expenditures, but the 
associated substantive requirements continue to apply, including the 
requirement that a capital expenditure must be reasonably designed to 
benefit the individual or class that experienced the identified impact 
or harm and must be related and reasonably proportional to the extent 
and type of impact or harm.

[[Page 4392]]



------------------------------------------------------------------------
                                                        and the use is
                                    and the use is       beyond those
 If a project has total expected     enumerated by       enumerated by
     capital expenditures of          Treasury as         Treasury as
                                    eligible, then      eligible, then
                                         \254\               \255\
------------------------------------------------------------------------
Less than $1 million............  No Written          No Written
                                   Justification       Justification
                                   required.           required.
Greater than or equal to $1       Written             Written
 million, but less than $10        Justification       Justification
 million.                          required but        required and
                                   recipients are      recipients must
                                   not required to     submit as part of
                                   submit as part of   regular reporting
                                   regular reporting   to Treasury.
                                   to Treasury.
$10 million or more.............  Written
                                   Justification
                                   required and
                                   recipients must
                                   submit as part of
                                   regular reporting
                                   to Treasury.
------------------------------------------------------------------------

    In selecting these thresholds, Treasury recognized that capital 
expenditures vary widely in size and therefore would benefit from 
tiered treatment to implement eligibility standards while minimizing 
administrative burden, especially for smaller projects. For example, 
Treasury selected $1 million as a threshold for whether a recipient 
needs to complete a Written Justification as well as a threshold under 
which capital expenditures would be presumed reasonably proportional. 
Treasury estimates that $1 million would encapsulate the costs of a 
significant portion of equipment or small renovations. These types of 
smaller projects are often a necessary and reasonably proportional part 
of a response to the public health emergency; therefore, the $1 million 
threshold provides a simplified pathway to complete smaller projects 
more likely to meet the eligibility standard. At the same time, 
Treasury selected $10 million as the threshold for more intensive 
reporting requirements, estimating that projects larger than $10 
million would likely constitute significant improvements or 
construction of mid- or large-sized facilities. As discussed above, 
given their scale and longer time to completion, these types of larger 
projects may be less likely to be reasonably proportional responses. 
The $10 million threshold also generally aligns with thresholds in 
other parts of the SLFRF program, such as for enhanced reporting on 
labor practices.
---------------------------------------------------------------------------

    \254\ Whether or not a Written Justification is required, 
recipients should still determine that the response is related and 
reasonably proportional to the public health emergency and its 
negative economic impacts. Treasury recognizes that enumerated 
eligible uses are ``related'' to the public health emergency and its 
negative economic impacts and presumed to be reasonably 
proportional, except recipients pursuing projects with expected 
total capital expenditures equal to or greater than $1 million 
should still independently determine that the expenditures are a 
reasonably proportional response. Enumerated projects with total 
expected capital expenditures under $1 million receive a safe harbor 
and deemed to meet the related and reasonably proportional standard.
    \255\ Whether or not a Written Justification is required, 
recipients should still determine that the response is related and 
reasonably proportional to the public health emergency and its 
negative economic impacts. Treasury presumes that projects with 
total expected capital expenditures under $1 million are reasonably 
proportional in size to responding to the public health emergency 
and its negative economic impacts; however, recipients should 
determine that the response otherwise meets the requirements of the 
standard, including that the response is related to the public 
health emergency and its negative economic impacts.
---------------------------------------------------------------------------

    Expenditures from closely related activities directed toward a 
common purpose are considered part of the scope of one project. These 
expenditures can include capital expenditures, as well as expenditures 
on related programs, services, or other interventions. A project 
includes expenditures that are interdependent (e.g., acquisition of 
land, construction of the school on the land, and purchase of school 
equipment), or are of the same or similar type and would be utilized 
for a common purpose (e.g., acquisition of a fleet of ambulances that 
would be used for COVID-19 emergency response). Recipients must not 
segment a larger project into smaller projects in order to evade 
review. A recipient undertaking a set of identical or similar projects 
(e.g., development of a number of new affordable housing complexes 
across the recipient jurisdiction) may complete one Written 
Justification comprehensively addressing the entire set of projects.
Projects Enumerated as Eligible by Treasury
    Under the public health and negative economic impacts eligible use 
category, the final rule provides a non-exclusive list of eligible uses 
of funding for projects that respond to the public health emergency or 
its negative economic impacts. Treasury has determined that these 
enumerated projects are related to the public health emergency and its 
negative economic impacts; however, recipients (other than Tribal 
governments) undertaking these projects with total expected capital 
expenditures of $1 million or greater must still complete and meet the 
substantive requirements of a Written Justification as part of their 
demonstration that the project is a related and reasonably proportional 
response to the harm identified.
    <bullet> Projects with total expected capital expenditures of under 
$1 million: Treasury provides a safe harbor for projects with total 
expected capital expenditures of less than $1 million and will not 
require recipients to complete, submit, or meet the substantive 
requirements of a Written Justification for the capital expenditure. In 
essence, recipients may pursue an enumerated project with total 
expected capital expenditures of under $1 million without having to 
undergo additional assessments to meet SLFRF requirements.
    <bullet> Projects with total expected capital expenditures of at 
least $1 million but under $10 million: Recipients should complete a 
Written Justification for the capital expenditure and make an 
independent assessment of whether their proposed capital expenditure 
meets the substantive requirements of the Written Justification. 
Recipients will not be required to submit the Written Justification as 
part of regular reporting to Treasury but should keep documentation for 
their records.
    <bullet> Projects with total expected capital expenditures of at 
least $10 million: Similar to the above, recipients should complete a 
Written Justification of the capital expenditure and make an 
independent assessment of whether their proposed capital expenditure 
meets the substantive requirements of the Written Justification. 
Further, recipients will be asked to submit the Written Justification 
as part of regular reporting to Treasury. Similar to other parts of the 
SLFRF program, such as on reporting on labor practices, Treasury 
recognizes that projects with expected total capital expenditures of at 
least $10 million may be less likely to meet eligibility requirements 
and therefore requires recipients to provide an enhanced level of 
information to Treasury.
Projects Beyond Those Enumerated as Eligible by Treasury
    As with all uses, recipients that undertake capital expenditures 
beyond those enumerated as eligible by Treasury must meet the two-part 
framework under Standards: Designating a Public Health Impact and 
Standards: Designating a Negative Economic Impact under General 
Provisions: Structure and Standards,

[[Page 4393]]

including the requirement that responses are related and reasonably 
proportional to the harm or impact identified. As part of that 
assessment, these recipients may also be asked to complete a Written 
Justification. Recipients (other than Tribal governments) are subject 
to the following presumptions for the Written Justification of the 
capital expenditure, based on the total expected capital expenditures 
of the project:
    <bullet> Projects with total expected capital expenditures of under 
$1 million: Treasury provides a safe harbor for unenumerated projects 
with total expected capital expenditures of under $1 million and will 
not require recipients to complete, submit, or meet the substantive 
requirements of a Written Justification of the capital expenditure. 
Recipients should still make a determination as to whether the capital 
expenditure is part of a response that is related and reasonably 
proportional to the public health emergency or its negative economic 
impacts.
    <bullet> Projects with total expected capital expenditures of $1 
million or over: Recipients should complete a Written Justification of 
the capital expenditure and make an independent assessment that their 
proposed capital expenditure meets the substantive requirements of the 
Written Justification. Further, recipients will be asked to submit the 
Written Justification as part of regular reporting to Treasury.
    Treasury employs a risk-based approach to overall program 
management and monitoring, which may result in heightened scrutiny on 
larger projects. Accordingly, recipients pursuing projects with larger 
capital expenditures should complete more detailed analyses for their 
Written Justification, commensurate with the scale of the project.
Additional Provisions, Standards, and Definitions
Strong Labor Standards in Construction
    Treasury encourages recipients to carry out projects in ways that 
produce high-quality work, avert disruptive and costly delays, and 
promote efficiency. Treasury encourages recipients to use strong labor 
standards, including project labor agreements (PLAs) and community 
benefits agreements that offer wages at or above the prevailing rate 
and include local hire provisions. Treasury also recommends that 
recipients prioritize in their procurement decisions employers who can 
demonstrate that their workforce meets high safety and training 
standards (e.g., professional certification, licensure, and/or robust 
in-house training), that hire local workers and/or workers from 
historically underserved communities, and who directly employ their 
workforce or have policies and practices in place to ensure contractors 
and subcontractors meet high labor standards. Treasury further 
encourages recipients to prioritize employers (including contractors 
and subcontractors) without recent violations of federal and state 
labor and employment laws.
    Treasury believes that such practices will promote effective and 
efficient delivery of high-quality projects and support the economic 
recovery through strong employment opportunities for workers. Such 
practices will reduce likelihood of potential project challenges like 
work stoppages or safety accidents, while ensuring a reliable supply of 
skilled labor and minimizing disruptions, such as those associated with 
labor disputes or workplace injuries. That will, in turn, promote on-
time and on-budget delivery.
    Furthermore, among other requirements contained in 2 CFR 200, 
Appendix II, all contracts made by a recipient or subrecipient in 
excess of $100,000 with respect to a capital expenditure that involve 
employment of mechanics or laborers must include a provision for 
compliance with certain provisions of the Contract Work Hours and 
Safety Standards Act, 40 U.S.C. 3702 and 3704, as supplemented by 
Department of Labor regulations (29 CFR part 5).
    Treasury will seek information from recipients on their workforce 
plans and practices related to capital expenditures undertaken under 
the public health and negative economic impacts eligible use category 
with SLFRF funds. This reporting will support transparency and 
competition by enhancing available information on the services being 
provided.
Environmental, Uniform Guidance, and Other Generally Applicable 
Requirements
    Treasury cautions that, as is the case with all projects using 
SLFRF funds, all projects must comply with applicable federal, state, 
and local law. In the case of capital expenditures in particular, this 
includes environmental and permitting laws and regulations. Likewise, 
as with all capital expenditure projects using the SLFRF funds, 
projects must be completed in a manner that is technically sound, 
meaning that it must meet design and construction methods and use 
materials that are approved, codified, recognized, fall under standard 
or acceptable levels of practice, or otherwise are determined to be 
generally acceptable by the design and construction industry.
    Further, as with all other uses of funds under the SLFRF program, 
the Uniform Guidance at 2 CFR part 200 applies to capital expenditures 
unless stated otherwise. Importantly, this includes 2 CFR part 200 
Subpart D on post-federal award requirements, including property 
standards pertaining to insurance coverage, real property, and 
equipment; procurement standards; sub-recipient monitoring and 
management; and record retention and access.
Definitions
    Treasury adopts several definitions from the Uniform Guidance at 2 
CFR 200.1 under this section, including for capital expenditures, 
capital assets, equipment, and supplies.
    Per the Uniform Guidance, the term ``capital expenditures'' means 
``expenditures to acquire capital assets or expenditures to make 
additions, improvements, modifications, replacements, rearrangements, 
reinstallations, renovations, or alterations to capital assets that 
materially increase their value or useful life.'' The term ``capital 
assets'' means ``tangible or intangible assets used in operations 
having a useful life of more than one year which are capitalized in 
accordance with [Generally Accepted Accounting Principles].''
    Capital assets include lands, facilities, equipment, and 
intellectual property. Equipment means ``tangible personal property 
(including information technology systems) having a useful life of more 
than one year and a per-unit acquisition cost which equals or exceeds 
the lesser of the capitalization level established by the non-Federal 
entity for financial statement purposes, or $5,000.'' Supplies, which 
means all tangible personal property other than those included as 
``equipment,'' are not considered capital expenditures.
    Recipients may also use SLFRF funds for pre-project development 
costs that are tied to or reasonably expected to lead to an eligible 
capital expenditure. For example, pre-project costs associated with 
planning and engineering for an eligible project are considered an 
eligible use of funds.
c. Distinguishing Subrecipients Versus Beneficiaries
    Under the interim final rule, state, local, and Tribal governments 
that receive a federal award directly from a federal awarding agency, 
such as Treasury, are designated as ``recipients,''

[[Page 4394]]

and state, local, and Tribal governments are authorized to transfer 
funds to other entities, including private entities like nonprofits. 
The interim final rule stated that, ``[a] transferee receiving a 
transfer from a recipient under sections 602(c)(3) and 603(c)(3) will 
be a subrecipient. Subrecipients are entities that receive a subaward 
from a recipient to carry out a program or project on behalf of the 
recipient with the recipient's Federal award funding.''
    For funds transferred to a subrecipient, the interim final rule 
noted that ``[r]ecipients continue to be responsible for monitoring and 
overseeing the subrecipient's use of SLFRF funds and other activities 
related to the award to ensure that the subrecipient complies with the 
statutory and regulatory requirements and the terms and conditions of 
the award. Recipients also remain responsible for reporting to Treasury 
on their subrecipients' use of payments from the SLFRF funds for the 
duration of the award.''
    Public Comment: Treasury received many comments requesting 
clarification about which entities qualify as subrecipients and are, in 
turn, subject to subrecipient monitoring and reporting requirements. 
For example, commenters sought clarification about whether a nonprofit 
that received a grant to provide services under a program to carry out 
an enumerated eligible use would qualify as a subrecipient and be 
subject to subrecipient monitoring and reporting requirements. 
Similarly, commenters also wondered if a nonprofit that received a 
grant in recognition of experiencing a negative economic impact of the 
public health emergency would also be a subrecipient and subject to 
subrecipient reporting requirements.
    Treasury Response: Treasury is clarifying the distinction between a 
subrecipient and beneficiary in the final rule. The Uniform Guidance 
definitions for subaward and subrecipient inform Treasury's distinction 
between subrecipients and beneficiaries.
    First, per 2 CFR 200.1 of Uniform Guidance ``[s]ubaward means an 
award provided by a pass-through entity \256\ to a subrecipient for the 
subrecipient to carry out part of a Federal award received by the pass-
through entity. It does not include payments to a contractor or 
payments to an individual that is a beneficiary of a Federal program. A 
subaward may be provided through any form of legal agreement, including 
an agreement that the pass-through entity considers a contract.''
---------------------------------------------------------------------------

    \256\ In this context, a pass-through entity means a recipient 
of SLFRF funds.
---------------------------------------------------------------------------

    Further, 2 CFR 200.1 of the Uniform Guidance defines a 
subrecipient, in that ``[s]ubrecipient means an entity, usually but not 
limited to non-Federal entities, that receives a subaward from a pass-
through entity to carry out part of a Federal award; but does not 
include an individual that is a beneficiary of such award. A 
subrecipient may also be a recipient of other Federal awards directly 
from a Federal awarding agency.'' Treasury is aligning the definition 
of subrecipient in the final rule with the definition of subrecipient 
in the Uniform Guidance.
    Treasury is maintaining the monitoring and subrecipient reporting 
requirements outlined in the final rule. Per 2 CFR 200.101 (b)(2) of 
the Uniform Guidance, the terms and conditions of federal awards flow 
down to subawards to subrecipients. Therefore, non-federal entities, as 
defined in the Uniform Guidance, must comply with the applicable 
requirements in the Uniform Guidance regardless of whether the non-
federal entity is a recipient or subrecipient of a federal award. This 
includes requirements such as the treatment of eligible uses of funds, 
procurement, and reporting requirements.
    The Uniform Guidance definitions for both subaward and subrecipient 
specify that payments to individuals or entities that are direct 
beneficiaries of a federal award are not considered subrecipients. The 
final rule adopts this definition of a beneficiary and outlines that 
households, communities, small businesses, nonprofits, and impacted 
industries are all potential beneficiaries of projects carried out with 
SLFRF funds. Beneficiaries are not subject to the requirements placed 
on subrecipients in the Uniform Guidance, including audit pursuant to 
the Single Audit Act and 2 CFR part 200, subpart F or subrecipient 
reporting requirements.
    The distinction between a subrecipient and a beneficiary, 
therefore, is contingent upon the rationale for why a recipient is 
providing funds to the individual or entity. If the recipient is 
providing funds to the individual or entity for the purpose of carrying 
out a SLFRF program or project on behalf of the recipient, the 
individual or entity is acting as a subrecipient. Acting as a 
subrecipient, the individual or entity is subject to subrecipient 
monitoring and reporting requirements. Conversely, if the recipient is 
providing funds to the individual or entity for the purpose of directly 
benefitting the individual or entity as a result of experiencing a 
public health impact or negative economic impact of the pandemic, the 
individual or entity is acting as a beneficiary. Acting as a 
beneficiary, the individual or entity is not subject to subrecipient 
monitoring and reporting requirements.
d. Uses Outside the Scope of This Category
Summary of the Interim Final Rule and Final Rule Structure
    In the interim final rule, Treasury noted that certain uses of 
funds are not permissible under the eligible use category of responding 
to the public health and negative economic impacts of the pandemic. In 
the final rule, these uses remain impermissible, but Treasury has re-
categorized where they are addressed to increase clarity.
    Specifically, the interim final rule provided that the following 
uses of funds are not eligible under this eligible use category: 
Contributions to rainy day funds, financial reserves, or similar funds; 
payment of interest or principal on outstanding debt instruments; fees 
or issuance costs associated with the issuance of new debt; and 
satisfaction of any obligation arising under or pursuant to a 
settlement agreement, judgment, consent decree, or judicially confirmed 
debt restructuring plan in a judicial, administrative, or regulatory 
proceeding, except to the extent the judgment or settlement requires 
the provision of services that would respond to the COVID-19 public 
health emergency. These uses of funds remain ineligible under the final 
rule; Treasury has re-categorized these issues to the section 
Restrictions on Use, which describes restrictions that apply to all 
eligible use categories, to clarify that these uses are not eligible 
under any eligible use category of SLFRF. Treasury responds to public 
comments on this issue in the section Restrictions on Use.
    As noted above, the interim final rule also posed several questions 
on what other types of services or costs Treasury should consider as 
eligible uses to respond to the public health and negative economic 
impacts of COVID-19, including in disproportionately impacted 
communities. In this section, Treasury addresses proposed uses of funds 
suggested by commenters that Treasury has not included as enumerated 
eligible uses of funds in this eligible use category.
General Eligible Uses
    Public Comment: Commenters proposed a wide variety of additional 
recommended enumerated eligible uses

[[Page 4395]]

in all sections of the public health and negative economic impacts 
eligible use category, including in impacted and disproportionately 
impacted communities. The proposed additional uses included general 
categories of services (e.g., legal and social services, long-term 
investments to remediate long-term disparities, response to natural 
disasters). Other suggested uses of funds respond to needs widely 
experienced across the country (e.g., access to and affordability of 
health insurance). Finally, other suggested uses of funds were highly 
specific (e.g., healthcare equipment for a specific health condition, 
fire hydrants, weather alert systems) or most applicable to the 
particularized needs to certain populations or geographic areas of the 
United States (e.g., senior citizens, immigrants, formerly incarcerated 
individuals, responding to environmental issues in certain geographic 
regions). Other commenters generally requested a high degree of 
flexibility to respond to the particular needs of their communities.
    Treasury Response: Given the large number and diversity of SLFRF 
recipients, Treasury has aimed to include as enumerated eligible uses 
programs, services, and capital expenditures that respond to public 
health and negative economic impacts of the pandemic experienced widely 
in many jurisdictions across the country, making it clear and simple 
for recipients to pursue these enumerated eligible uses under the final 
rule. This provides enumerated eligible uses that many recipients may 
want to pursue, while including uses that are responsive to the 
pandemic's impacts across the diverse range of SLFRF recipients. In the 
final rule, Treasury has clarified several additional uses that 
generally respond to pandemic impacts experienced broadly across 
jurisdictions and populations.
    Treasury has not chosen to include as enumerated uses all uses 
proposed by commenters; given the significant range, and in some cases 
highly specific nature, of the proposed uses Treasury was not able to 
assess that the proposed uses would respond to negative economic 
impacts experienced generally across the country, supporting an 
enumerated eligible use available to all recipients presumptively.
    However, Treasury emphasizes that the enumerated eligible uses are 
non-exhaustive and that other uses, beyond those enumerated, are 
eligible. Treasury recognizes that the impacts of the pandemic vary 
over time, by jurisdiction, and by population; as such, the final rule 
provides flexibility for recipients to identify other public health or 
negative economic impacts to additional households, small businesses, 
or nonprofits, including classes of these entities, and pursue programs 
and services that respond to those impacts. Treasury also notes that 
some populations are presumed to be impacted or disproportionately 
impacted by the pandemic, and thus eligible for responsive services; 
these presumed eligible populations may encompass many individuals in 
the specific populations for whom commenters recommended services. For 
details on these issues, see section General Provisions: Structure and 
Standards.
Infrastructure, Community Development, and General Economic Development
    Some potential additions to enumerated eligible uses were also 
recommended by several commenters each but are not included as 
enumerated eligible uses in the final rule.
    Public Comment: Infrastructure: In the interim final rule, Treasury 
noted that a ``general infrastructure project, for example, typically 
would not be included [in this eligible use category] unless the 
project responded to a specific pandemic public health need.''
    Numerous commenters requested that Treasury permit investments in 
infrastructure as a response to the public health and negative economic 
impacts of the pandemic. While these comments most commonly recommended 
that constructing and maintaining roads and surface transportation 
infrastructure be eligible, the proposed uses for infrastructure ranged 
widely and included parking lots, bridges, traffic management 
infrastructure, solid waste disposal facilities, and utility 
infrastructure (outside of water, sewer, and broadband).
    Many commenters argued that infrastructure development and 
maintenance is a pressing need in their communities and that their 
communities had less need for water, sewer, and broadband 
infrastructure or other eligible uses to respond to the public health 
and negative economic impacts of the pandemic. Other commenters argued 
that these uses would stimulate the economy, attract businesses, or 
allow for tourist movement; these commenters argued that, by generally 
supporting a stronger economy or facilitating conditions that are more 
conducive to business activity and tourism, these uses respond to the 
negative economic impacts of the pandemic.
    Treasury Response: In the final rule, Treasury is maintaining the 
approach under the interim final rule that general infrastructure 
projects, including roads, streets, and surface transportation 
infrastructure, would generally not be eligible, unless the project 
responded to a specific pandemic public health need or a specific 
negative economic impact.
    The ARPA expressly includes infrastructure if it is ``necessary'' 
and in water, sewer, or broadband, suggesting that the statute 
contemplates only those types of infrastructure. Further, responding to 
the public health and negative economic impacts of the pandemic 
requires identifying whether, and the extent to which, there has been a 
harm that resulted from the COVID-19 public health emergency and 
whether, and the extent to which, the use would respond or address this 
harm. Uses of funds intended to generally grow the economy and 
therefore enhance opportunities for workers and businesses would not be 
an eligible use, because such assistance is not reasonably designed to 
impact individuals or classes that have been identified as having 
experienced a negative economic impact. In other words, there is not a 
reasonable connection between the assistance provided and an impact on 
the beneficiaries. Such an activity would be attenuated from and thus 
not reasonably designed to benefit the households that experienced the 
negative economic impact.
    Note, however, that Treasury has clarified that capital 
expenditures that are related and reasonably proportional to responding 
to the public health and economic impacts of the pandemic are eligible 
uses of funds, in addition to programs and services; for details on 
eligibility criteria for capital expenditures, see section Capital 
Expenditures in General Provisions: Other.
    Public Comment: Community Development Block Grant: Several 
commenters recommended that Treasury enumerate as eligible uses those 
eligible under the Department of Housing and Urban Development's 
Community Development Block Grant (CDBG) or the Housing and Community 
Development Act of 1974, which established the CDBG program. Commenters 
requested that these uses be eligible either to respond to the negative 
economic impacts of the pandemic, or in the alternate the 
disproportionate negative economic impacts of the pandemic in certain 
communities. Under the CDBG program, recipient governments may 
undertake a wide range of community and economic

[[Page 4396]]

development services and projects. Commenters reasoned that many state 
and local governments are familiar with this program, and that aligning 
to its eligible uses may help recipients easily understand and pursue 
eligible projects. Commenters also noted that Treasury had chosen to 
align with existing federal programs in other eligible use categories, 
namely water infrastructure, in the interim final rule.
    Treasury Response: In the final rule, Treasury is not including all 
categories of projects permissible under CDBG as enumerated eligible 
uses to respond to the public health and negative economic impacts of 
the pandemic. Because CDBG permits such a broad range of activities, 
including services to individual households, communities, small 
businesses, general economic development activities, and capital 
expenditures, Treasury determined that it was more appropriate to 
assess the underlying types of projects eligible within CDBG and 
whether each type of project responds to the negative economic impacts 
of the pandemic. In other words, Treasury considered whether various 
types of community and economic development projects respond to the 
impacts of the pandemic in different communities and circumstances. In 
the final rule, Treasury addresses the eligibility of these various 
types of projects in each relevant eligible use category within public 
health and negative economic impacts under SLFRF, including assistance 
for impacted households, disproportionately impacted households, 
disproportionately impacted small businesses, and capital expenditures.
    Public Comment: General Economic Development: Treasury provided 
guidance following the interim final rule that general economic 
development or workforce development would generally not be eligible as 
it does not respond to a negative economic impact of the COVID-19 
public health emergency.
    Some commenters recommended that Treasury expand enumerated 
eligible uses to include general economic development activities, 
beyond those that respond to negative economic impacts of the pandemic, 
such as creating an economic development strategy for the 
jurisdiction's overall economic growth, creating a general workforce 
development strategy, or providing funds to businesses that did not 
experience negative economic impacts to carry out economic development 
activities or to incentivize the addition or retention of jobs. 
Commenters supportive of assistance to businesses for general economic 
development activities argued that subsidies to businesses increase job 
growth and that, in some cases, assistance to companies that excelled 
during the public health emergency would help create more job 
opportunities for workers or expand the jurisdiction's tax base and 
produce funds to support government services. In contrast, other 
commenters argued that academic research consistently finds that 
economic development subsidies have a negligible, or even negative, 
economic effect, citing research findings to this effect.\257\
---------------------------------------------------------------------------

    \257\ See, e.g., Matthew D. Mitchell et al., The Economics of a 
Targeted Economic Development Subsidy (Arlington, VA: Mercatus 
Center at George Mason University, 2019), 5, available at https://www.mercatus.org/publications/government-spending/economics-targeted-economic-development-subsidy; Timothy J. Bartik, Who 
Benefits from Economic Development Incentives? How Incentive Effects 
on Local Incomes and the Income Distribution Vary with Different 
Assumptions about Incentive Policy and the Local Economy (Upjohn 
Institute Technical Report No. 13-034, W.E. Upjohn Institute for 
Employment Research, March 1, 2018), available at: https://research.upjohn.org/up_technicalreports/34/; Cailin Slattery and 
Owen Zidar, Evaluating State and Local Business Tax Incentives, 
Journal of Economic Perspectives 34, no. 2 (2020): 90-118, available 
at: https://www.aeaweb.org/articles?id=10.1257/jep.34.2.90; Kenneth 
Thomas, The State of State and Local Subsidies to Business (Mercatus 
Policy Brief, Mercatus Center at George Mason University, Arlington, 
VA, October 2019), available at: https://www.mercatus.org/system/files/thomas_-_policy_brief_-_the_state_of_state_and_local_subsidies_to_business_-_v1.pdf; Dennis 
Coates, Growth Effects of Sports Franchises, Stadiums, and Arenas: 
15 Years Later (Mercatus Working Paper, Mercatus Center at George 
Mason University, Arlington, VA, September 2015), available at: 
https://www.mercatus.org/system/files/Coates-Sports-Franchises.pdf; 
Dennis Coates and Brad R. Humphreys, Do Economists Reach a 
Conclusion on Subsidies for Sports Franchises, Stadiums, and Mega-
Events?, Econ Journal Watch 5, no. 3 (2008): 294-315, available at: 
https://econjwatch.org/articles/do-economists-reach-a-conclusion-on-subsidies-for-sports-franchises-stadiums-and-mega-events; Matthew D. 
Mitchell, Daniel Sutter, and Scott Eastman, The Political Economy of 
Targeted Economic Development Incentives, Review of Regional Studies 
48, no. 1 (2018): 1-9, available at: https://www.mercatus.org/publications/corporate-welfare/political-economy-targeted-economic-development-incentives.
---------------------------------------------------------------------------

    Treasury Response: In the final rule, Treasury maintains the 
interim final rule's approach that general economic development or 
workforce development, meaning activities that do not respond to 
negative economic impacts of the pandemic and rather seek to more 
generally enhance the jurisdiction's business climate, would generally 
not be eligible under this eligible use category. As noted above, to 
identify an eligible use of funds under this category, a recipient must 
identify a beneficiary or class of beneficiaries that experienced a 
harm or impact due to the pandemic, and eligible uses of funds must be 
reasonably designed to respond to the harm, benefit the beneficiaries 
that experienced it, and be related and reasonably proportional to that 
harm or impact.
    As noted above, recipients should analyze eligible uses based on 
the beneficiary of the assistance, and recipients may not provide 
assistance to small businesses or impacted industries that did not 
experience a negative economic impact. Provision of assistance to a 
business that did not experience a negative economic impact, under the 
theory that such assistance would generally grow the economy and 
therefore enhance opportunities for workers, would not be an eligible 
use, because such assistance is not reasonably designed to impact 
individuals or classes that have been identified as having experienced 
a negative economic impact. In other words, there is not a reasonable 
connection between the assistance provided and an impact on the 
beneficiaries. Such an activity would be attenuated from and thus not 
reasonably designed to benefit the households that experienced the 
negative economic impact. Research cited by some commenters finding 
that business subsidies have limited or negative economic impact also 
suggests that such a response may not be reasonably designed to benefit 
households and other entities impacted by the pandemic. Similarly, 
planning activities for an economic development or workforce strategy 
regarding general future economic growth do not provide a program, 
service, or capital expenditure that responds to negative economic 
impacts of the pandemic.
    However, Treasury notes that the final rule includes as enumerated 
eligible uses many types of assistance that respond to negative 
economic impacts of the pandemic and may produce economic development 
benefits. For example, see sections Assistance to Unemployed Workers, 
Assistance to Small Businesses, and Capital Expenditures.

B. Premium Pay

Background and Summary of the Interim Final Rule
    Sections 602(c)(1)(B) and 603(c)(1)(B) of the Social Security Act, 
as added by the ARPA, provide that SLFRF funds may be used ``to respond 
to workers performing essential work during the COVID-19 public health 
emergency by providing premium pay to eligible workers of the . . . 
government that are performing such essential work, or by providing 
grants to eligible employers

[[Page 4397]]

that have eligible workers who perform essential work.''
    Premium pay is designed to compensate workers that, by virtue of 
their employment, were forced to take on additional burdens and make 
great personal sacrifices as a result of the COVID-19 pandemic. Premium 
pay can be thought of as hazard pay by another name.\258\
---------------------------------------------------------------------------

    \258\ See U.S. Department of Labor, Hazard Pay, https://www.dol.gov/general/topic/wages/hazardpay (last visited October 18, 
2021).
---------------------------------------------------------------------------

    During the public health emergency, employers' policies on COVID-
19-related premium pay or hazard pay have varied widely, with many 
essential workers not yet compensated for the heightened risks they 
have faced and continue to face.\259\ Many of these workers earn lower 
wages on average and live in socioeconomically underserved communities 
as compared to the general population.\260\ A recent study found that 
25 percent of essential workers were estimated to have low household 
income, with 13 percent in high-risk households.\261\ The low pay of 
many essential workers makes them less able to cope with the financial 
consequences of the pandemic or their work-related health risks. As 
Americans return to work and governments relax certain rules, essential 
workers will continue to bear the brunt of the risk of maintaining the 
ongoing operation of vital facilities and services. The added health 
risk to essential workers is one prominent way in which the pandemic 
has amplified pre-existing socioeconomic inequities. Premium pay is 
designed to address the disparity between the critical services 
provided by and the risks taken by essential workers and the relatively 
low compensation they tend to receive.
---------------------------------------------------------------------------

    \259\ Economic Policy Institute, Only 30% of those working 
outside their home are receiving hazard pay (June 16, 2020), https://www.epi.org/press/only-30-of-those-working-outside-their-home-are-receiving-hazard-pay-black-and-hispanic-workers-are-most-concerned-about-bringing-the-coronavirus-home/.
    \260\ McCormack, supra note 65.
    \261\ Id.
---------------------------------------------------------------------------

    The interim final rule established a three-part framework for 
recipients seeking to use SLFRF funds for premium pay. First, to 
receive premium pay one must be an eligible worker. Second, an eligible 
worker must also perform essential work. Finally, premium pay must 
respond to workers performing essential work during the COVID-19 public 
health emergency. Most of the comments received by Treasury pertaining 
to premium pay related to these three requirements. Comments also 
addressed the definition of premium pay generally and posed questions 
regarding premium pay program structuring. This section responds to the 
comments by addressing the three requirements in turn, then the overall 
definition of premium pay and, finally, program structure.
Eligible Workers
    The ARPA defines ``eligible workers'' as ``those workers needed to 
maintain continuity of operations of essential critical infrastructure 
sectors and additional sectors as each . . . [government] may designate 
as critical to protect the health and wellbeing of [its] residents.'' 
The interim final rule supplemented this definition by identifying a 
list of ``essential critical infrastructure sectors'' whose workers are 
eligible workers, based on the list of sectors in the HEROES Act, a 
bill introduced in the House of Representatives in 2020 that would have 
provided premium pay to essential workers.\262\ In addition to the 
critical infrastructure sectors defined in the interim final rule, the 
chief executive (or equivalent) of a recipient government may designate 
additional non-public \263\ sectors as critical so long as doing so is 
necessary to protecting the health and wellbeing of the residents of 
such jurisdiction.
---------------------------------------------------------------------------

    \262\ See H.R. 6800, 116th Cong. (2020).
    \263\ Note that the sectors defined in the interim final rule 
already include all state, local, and Tribal government employees.
---------------------------------------------------------------------------

    Public Comment: Treasury received multiple comments on the 
definition of ``eligible worker'' included in the interim final rule. 
Many commenters agreed with the definition of eligible worker adopted 
by Treasury. Other commenters sought clarification about or changes to 
the definition of eligible worker, including the definition of eligible 
sectors, the inclusion of government workers in the definition of 
eligible workers, and the process for designating additional non-public 
sectors as eligible.
    Some commenters asked Treasury to change how it identifies eligible 
sectors, including suggestions to add to or subtract from the list of 
eligible sectors. For example, some commenters asked Treasury to 
consider using Bureau of Labor Statistics (BLS)-Standard Occupational 
Classifications to identify specific sectors or occupations, in 
contrast to the approach taken in the interim final rule, which 
included a mixture of economic sectors, industries, and occupations. 
Many commenters asked Treasury to explicitly clarify that a particular 
industry or occupation is covered by the definition of ``essential 
critical infrastructure sector.'' Some of these commenters represented 
public employees, e.g., employees of facilities and public works; 
public utilities; courthouse employees; police, fire, and emergency 
medical services; and waste and wastewater services. Others were a 
mixture of public and private sector employees, e.g., coroners and 
medical examiners; transportation infrastructure (specifically electric 
vehicle infrastructure and supply equipment); electric utilities, 
natural gas, and steam supply; and grocery employees. Other commenters 
requested that Treasury prohibit certain occupations currently included 
in the eligible workers definition (e.g., police and corrections 
officers) from receiving premium pay for performance of regular duties.
    Commenters also asked Treasury to clarify which government workers 
are included in the definition of eligible workers. The interim final 
rule included as an essential critical infrastructure sector, ``any 
work performed by an employee of a State, local, or Tribal 
government.'' Some commenters requested that Treasury adopt a 
definition of eligible worker that includes all employees of the 
recipient government; however, all public employees of state, local, 
and Tribal governments are already included in the interim final rule 
definition of ``eligible worker.'' Commenters asked whether this 
includes governments that did not receive SLFRF funds (i.e., ``non 
recipient governments''). Many commenters from Tribal governments 
requested that the definition of eligible worker, which includes ``any 
work performed by an employee of a . . . Tribal government,'' also 
include an employee of a ``Tribal enterprise'' to remove uncertainty 
regarding which employees are included.
    Finally, commenters made suggestions for the process by which the 
chief executive (or equivalent) of a recipient government may designate 
additional non-public sectors as critical. Commenters asked that 
Treasury adopt a requirement that Treasury must approve or deny any 
additional non-public sector identified by the chief executive of a 
recipient government prior to implementation of the recipient's 
program.
    Some commenters asked Treasury to clarify whether their chief 
executive (or equivalent) could designate particular, and in some cases 
all, employees of the recipient government as eligible for premium pay.
    Treasury Response: In the final rule, Treasury will preserve the 
definition of ``eligible worker'' as it was defined in the interim 
final rule with minor modifications to clarify that all public

[[Page 4398]]

employees of recipient governments are already included in the interim 
final rule definition of ``eligible worker.'' A more specific 
eligibility system (e.g., linking eligibility to specific occupational 
or industry codes) would have provided more certainty but would have 
been much more rigid. In contrast, the current definition is flexible 
enough to give recipients the ability to tailor their premium pay 
programs to meet their needs while ensuring that programs focus on 
sectors where workers were forced to shoulder substantial risk as a 
result of the COVID-19 pandemic. Furthermore, the critical 
infrastructure sectors defined in the interim final rule already 
include many of the occupations that commenters requested be added. For 
example, Treasury received many comments from public workers asking to 
be included in the definition of ``eligible worker'' even though these 
workers already fall within the scope of ``any work performed by an 
employee of a State, local, or Tribal government.'' Treasury has 
clarified in the final rule that the chief executive's discretion to 
designate additional sectors as critical relates only to ``non-public'' 
sectors, since all public employees of recipient governments are 
already included in the definition of ``eligible worker.'' While all 
such public employees are ``eligible workers'' and the chief executive 
(or equivalent) of a recipient government may designate additional non-
public sectors as critical, in order to receive premium pay, these 
workers must still meet the other premium pay requirements (e.g., 
performing essential work).
    Treasury recognizes that the list of ``essential critical 
infrastructure sectors'' includes both occupations and sectors. 
Recipients, if uncertain which occupations are included in a critical 
infrastructure sector, may consult government occupational 
classifications if helpful but are not required to do so.\264\ 
Furthermore, a recipient government does not need to submit to Treasury 
for approval its designation of a sector as essential critical 
infrastructure; rather, Treasury will defer to the reasonable 
interpretation of the recipient government and the discretion of the 
recipient's chief executive in making such designations. If a recipient 
is unsure if a non-public sector is covered by the definition in the 
final rule,\265\ the chief executive (or equivalent) of a recipient 
government may also identify the non-public sector as critical so long 
as the chief executive deems the non-public sector necessary to 
protecting the health and wellbeing of residents. Treasury has, where 
possible, clarified the definition of ``essential critical 
infrastructure sectors.'' For instance, Treasury has clarified in the 
final rule that work performed by an employee of a Tribal government 
includes an employee of a Tribal enterprise and discussed in this 
Supplementary Information how a recipient may qualify other non-public 
sectors as essential critical infrastructure.
---------------------------------------------------------------------------

    \264\ See, e.g., sources such as Bureau of Labor Statistics, 
Occupational Outlook Handbook, which provide information on which 
professions or occupations are typically included in interpretations 
of a sector, https://www.bls.gov/ooh/.
    \265\ Public sector workers are ``eligible workers'' under the 
interim final rule and final rule.
---------------------------------------------------------------------------

Essential Work
    The interim final rule defined ``essential work'' as work that (1) 
is not performed while teleworking from a residence and (2) involves 
either (i) regular, in-person interactions with patients, the public, 
or coworkers of the individual that is performing the work or (ii) 
regular physical handling of items that were handled by, or are to be 
handled by, patients, the public, or coworkers of the individual that 
is performing the work. Treasury adopted this definition of essential 
work to ensure that premium pay is targeted to workers that faced or 
face heightened risks due to the character of their work during a 
pandemic.
    Public Comment: Some commenters found the definition unclear and 
asked Treasury to clarify what constitutes ``essential work.'' Others 
disagreed with the essential work test altogether, arguing that it 
forces recipients to distinguish between essential and non-essential 
employees, which may be difficult to do. Accordingly, these commenters 
asked Treasury to allow recipients to determine which workers qualify 
as essential. Treasury also received several requests that specific 
occupations be explicitly deemed essential, including all public 
employees, veterinarians, election administrators, detention staff and 
sheriff's deputies, and employees of utilities, such as electric power, 
natural gas, steam supply, water supply, and sewage removal.
    Several commenters requested that Treasury not distinguish between 
remote and in-person work or amend the standard so that employees 
providing essential services would still be eligible even if they 
worked remotely. Finally, a few commenters requested clarification as 
to the definition of ``regular'' in-person interactions and whether 
Treasury could clarify which job functions merit more (or less) premium 
pay.
    Treasury Response: Treasury is maintaining the definition of 
``essential work'' in the final rule without modification. The test 
adopted in the interim final rule was designed to compensate workers 
facing disproportionate risk due to the pandemic. COVID-19 is 
transmitted through person-to-person interactions, and therefore, 
workers with regular in-person interactions are the primary group 
facing increased health risks. Although COVID-19 is not transmitted 
primarily by people handling items, such work may present increased 
risk in certain cases, and the final rule maintains the interim final 
rule's inclusion of such work in order to give recipient governments 
the flexibility to include workers performing such work as they 
determine appropriate. Changing the test as some commenters suggested, 
e.g., by eliminating the in-person work requirement or allowing 
recipients to designate which employees are essential, even if not 
working in person, would no longer focus the program on workers taking 
on additional health risks and instead allow premium pay to be awarded 
to individuals who experienced relatively little risk of exposure to 
COVID-19. To maintain flexibility, Treasury is not defining the term 
``regular'' with regard to in-person interactions, allowing recipients 
to develop programs based on the specific workforce to be served and 
local circumstances. Generally speaking, however, recipients are 
encouraged to consider an eligible worker's risk of exposure in 
designing premium pay programs.
Respond To
    As required by the ARPA, the interim final rule required that 
premium pay programs ``respond to'' eligible workers performing 
essential work during the COVID-19 public health emergency. Premium pay 
responds to eligible workers performing essential work if it 
prioritizes low- and moderate-income persons, given the significant 
share of essential workers that are low- and moderate-income and may be 
least able to bear added costs associated with illness. The level of 
the award limit--up to $13 per hour not to exceed $25,000 in 
aggregate--in the ARPA supports this reasoning.
    Accordingly, the interim final rule required written justification 
for how premium pay to certain higher-income workers responds to 
eligible workers performing essential work: If a recipient

[[Page 4399]]

(or grantee) uses SLFRF funds to provide premium pay to an employee and 
the pay or grant would increase a worker's total pay above 150 percent 
of their residing state or county's average annual wage for all 
occupations, as defined by the BLS Occupational Employment and Wage 
Statistics, whichever is higher, on an annual basis, then the recipient 
must provide, whether for themselves or on behalf of a grantee, written 
justification to Treasury detailing how the award responds to eligible 
workers performing essential work.
    Public Comment: Treasury received numerous comments on the wage 
threshold and the written justification requirement. Several commenters 
supported the threshold as a way to encourage recipients to target 
premium pay to lower-income, eligible workers. Some commenters even 
asked Treasury to make the wage threshold a firm restriction, above 
which an eligible worker could not receive premium pay. Others agreed 
with the threshold but also requested flexibility to use existing 
worker classifications as an administratively simple way to identify 
workers for whom premium pay would be responsive. For instance, a few 
commenters asked Treasury to allow recipients or grantees to presume 
that premium pay ``responds to'' eligible workers performing essential 
work when it is provided to employees who are not exempt from the Fair 
Labor Standards Act (FLSA) overtime provisions--a test that employers 
are routinely required to apply.\266\
---------------------------------------------------------------------------

    \266\ See generally 29 U.S.C. 207(a); U.S. Department of Labor, 
Overtime Pay Requirements of the FLSA (Fact Sheet No. 23), https://www.dol.gov/agencies/whd/fact-sheets/23-flsa-overtime-pay.
---------------------------------------------------------------------------

    In contrast, several commenters disagreed with the threshold and 
the requirement for written justification. A few commenters thought the 
threshold was too low to capture employees in certain critical 
infrastructure sectors (e.g., public safety, waste collection) and that 
it did not sufficiently account for the variance in economic need 
across different geographic areas and family structures. Some smaller 
communities argued that the threshold was difficult to calculate and 
apply.
    Other commenters proposed revisions for how the threshold is 
calculated. For instance, a few commenters asked Treasury to consider 
using alternative earnings measures such as median income. Similarly, 
another commenter asked Treasury to consider the incomes of workers 
with different levels of seniority in developing any income thresholds 
for permitting or reporting on premium pay.
    Finally, there was also some uncertainty as to the threshold and 
the requirement for written justification. Some commenters interpreted 
the threshold as a hard cap on who was eligible for premium pay, which 
is not the case. Relatedly, some commenters also requested further 
guidance on what recipients should include in the written justification 
submitted to the Secretary.
    Treasury Response: The final rule makes some modifications to the 
determination of when premium pay ``responds to'' eligible workers 
performing essential work during the public health emergency. Under the 
interim final rule, premium pay was responsive if either the workers' 
pay was below a wage threshold or, if the pay was above a wage 
threshold, the recipient submitted written justification to Treasury 
explaining how the premium pay was responsive. The final rule retains 
these two means of establishing premium pay in response to workers 
performing essential work and adds an additional means of demonstrating 
that premium pay is responsive. Under the final rule, a recipient may 
also show that premium pay is responsive by demonstrating that the 
eligible worker receiving premium pay is not exempt from the FLSA 
overtime provisions.\267\ This change will expand the number of workers 
eligible to receive premium pay \268\ and does not require recipients 
to provide written justification to Treasury regarding the workers who 
are not exempt from the FLSA overtime provisions, making the program 
easier to administer for recipients. Incorporating this change further 
simplifies application of the final rule for recipients because 
Treasury understands that most employers, public and private, are 
familiar with and are routinely required to apply the FLSA.
---------------------------------------------------------------------------

    \267\ Department of Labor, Overtime Pay, https://www.dol.gov/agencies/whd/overtime; see also 29 U.S.C. 207.
    \268\ Among workers that report working overtime, roughly 41-44 
percent of workers earn above $50,000 per year, which is slightly 
less than the national average annual wage for all employees 
according to the Bureau of Labor Statistics' Occupational Employment 
and Wage Statistics, available at https://www.bls.gov/oes/. See also 
U.S. Census Bureau, Basic Monthly CPS, January 2019 through December 
2019, available at https://www.census.gov/data/datasets/time-series/demo/cps/cps-basic.html. Notes: Annual earnings reflect weekly wages 
multiplied by 52. Usual weekly earnings are computed by BLS to 
include earnings from work such as tips, overtime, regular wages, 
etc., but not non-labor sources of income such as government 
transfers and capital gains. Pre-overtime earnings are computed by 
taking the difference of usual weekly earnings and earnings from 
overtime last week and multiplying by 52. Note, some sources 
multiply weekly earnings by 50 instead of 52 to account for unpaid 
time off and holidays, so these figures may be slightly larger than 
those reported elsewhere. Either assumption may overestimate 
earnings if workers do not work year-round.
---------------------------------------------------------------------------

    With this addition, the final rule provides that premium pay is 
responsive to eligible workers performing essential work during the 
public health emergency if each eligible worker who receives premium 
pay falls into one of three categories: (1) The worker's pay is below 
the wage threshold, (2) the worker is not exempt from the FLSA overtime 
provisions, or (3) the recipient has submitted a written justification 
to Treasury.
    The final rule makes it clear that written justification to 
Treasury is not necessary with respect to eligible workers whose pay is 
less than the wage threshold. Nor is written justification necessary 
with respect to eligible workers who are not exempt from the FLSA 
overtime provisions. The written justification is only necessary if the 
worker's pay (with or without the premium) exceeds the threshold, and 
the worker is exempt from the FLSA overtime provisions. The final rule 
also clarifies that a worker's pay exceeds the threshold if either the 
premium pay increases the worker's total pay above the wage threshold 
or the worker's total pay was already above the threshold, before 
receiving premium pay.
    Treasury has also updated the final rule to clarify that written 
justification means a brief, written narrative justification of how the 
premium pay or grant is responsive to workers performing essential work 
during the public health emergency. This could include a description of 
the essential workers' duties, health or financial risks faced due to 
COVID-19, and why the recipient determined that the premium pay was 
responsive despite the workers' higher income.
    Recipients should refer to SLFRF program reporting guidance, user 
guides, and other documentation for further guidance on the form and 
content of the written justification. Treasury anticipates that 
recipients will easily be able to satisfy the justification requirement 
for front-line workers, like nurses and hospital staff.
Definition of Premium Pay
    The statute defines premium pay as ``an amount of up to $13 per 
hour . . . , in addition to wages or remuneration the eligible worker 
otherwise receives, for all work performed by the eligible worker 
during the COVID-19 public health emergency. Such amount may not exceed 
$25,000 with respect to any single eligible worker.'' The interim

[[Page 4400]]

final rule incorporated this definition and emphasized that premium pay 
should be in addition to compensation typically received.
    Public Comment: Several submitted comments related to the 
definition of ``premium pay.'' Several commenters asked Treasury to 
clarify certain aspects of the interim final rule and statutory 
definition of premium pay. For instance, a few commenters asked whether 
the $25,000 limit applies to the annual amount of premium pay received 
or the aggregate amount of premium pay received over the period of 
performance. A few commenters requested flexibility as to how premium 
pay may be awarded, including flexibility to make monthly or quarterly 
payments or lump sum payments. Finally, commenters requested additional 
clarification as to how premium pay should be calculated. For instance, 
a commenter asked how to calculate the amount of and account for 
overtime pay and other incentive pay.\269\
---------------------------------------------------------------------------

    \269\ See 29 U.S.C. 207(a) (``[A]t a rate not less than one and 
one-half times the regular rate at which he is employed.'').
---------------------------------------------------------------------------

    Treasury Response: Treasury has clarified some of these issues in 
the final rule. For example, Treasury has clarified in the final rule 
that the $25,000 per employee limit is for the entire period of 
performance, not an annual cap. Further, recipients have discretion 
with respect to the way in which premium pay is awarded to eligible 
workers (e.g., monthly, quarterly, lump sum), provided that the total 
premium pay awarded to any eligible worker does not exceed $13 per hour 
or $25,000 over the period of performance. Finally, a recipient may 
award premium pay to an eligible worker in addition to the overtime pay 
already earned by the eligible worker but in no instance may the 
portion of the compensation funded with SLFRF funds exceed $13 per 
hour, even if strict time-and-a-half calculation requires more.\270\ To 
the extent that an employer is required under the FLSA to make payments 
to an eligible worker in excess of $13 per hour or $25,000 in the 
aggregate over the period of performance, the employer must use a 
source of funding other than the SLFRF funds to satisfy those 
obligations.
---------------------------------------------------------------------------

    \270\ All recipients are required to comply with otherwise 
applicable laws, including any wage and hour requirements in the 
Fair Labor Standards Act. See generally, Department of Labor, Wages 
and the Fair Labor Standards Act, https://www.dol.gov/agencies/whd/flsa.
---------------------------------------------------------------------------

Program Structure
    Public Comment: Several commenters also requested elaboration on 
eligible types of employees and permissible structures for awarding 
premium pay. A few commenters asked if premium pay could be awarded to 
volunteers or those in irregular and non-hourly or salaried employment 
positions. Similarly, various commenters asked if part-time workers 
were eligible for premium pay.
    Some commenters asked Treasury to provide more detail on when 
premium pay may be paid retroactively or if a government could 
reimburse its general fund for hazard pay already paid before the start 
of the period of performance.
    Treasury Response: Treasury has also made clear in the final rule 
that a recipient may award premium pay to non-hourly or salaried 
workers as well as part-time workers. Premium pay may not, however, be 
awarded to volunteers. If a recipient is interested in compensating 
volunteers with SLFRF funds, then it must do so consistent with the 
requirements set forth in other eligible use categories; for example, 
see section Public Sector Capacity and Workforce in Public Health and 
Negative Economic Impacts.
    Under the final rule, recipients may award premium pay 
retroactively; however, SLFRF funds may not be used to reimburse a 
recipient or eligible employer grantee for premium pay or hazard pay 
already received by the employee. To make retroactive premium payments 
funded with SLFRF funds, a recipient or eligible employer grantee must 
make a new cash outlay for the premium payments and the payments must 
be in addition to any wages or remuneration the eligible worker already 
received, subject to the other requirements and limitations set forth 
in the ARPA and this final rule.
    Finally, as part of accepting the Award Terms and Conditions for 
SLFRF, each recipient agreed to maintain a conflict-of-interest policy 
consistent with 2 CFR 200.318(c) that is applicable to all activities 
funded with the SLFRF award. This award term requires recipients and 
subrecipients to report to Treasury or the pass-through agency, as 
appropriate, any potential conflict of interest related to the award 
funds per 2 CFR 200.112. Pursuant to this policy, decisions concerning 
SLFRF funds must be free of undisclosed personal or organizational 
conflicts of interest, both in fact and in appearance. Consistent with 
this policy, elected officials are prohibited from using their official 
position and control over SLFRF funds for their own private gain. This 
policy also prohibits, among other things, elected officials from 
steering funds to projects in which they have a financial interest or 
using funds to pay themselves premium pay.

C. Revenue Loss

Background
    Sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security Act 
provide that SLFRF funds may be used ``for the provision of government 
services to the extent of the reduction in revenue of such . . . 
government due to the COVID-19 public health emergency relative to 
revenues collected in the most recent full fiscal year of the . . . 
government prior to the emergency.'' This provision allows recipients 
experiencing budget shortfalls to use payments from the SLFRF funds to 
avoid cuts to government services and, thus, enables state, local, and 
Tribal governments to continue to provide valuable services and ensures 
that fiscal austerity measures do not hamper the broader economic 
recovery.
    State and local government budgets experienced stress in fiscal 
year 2020 as delayed tax filings and pandemic-related business closures 
caused revenues to decline sharply.\271\ Twenty-two state governments 
took actions to close budget gaps in fiscal year 2020 \272\ and nearly 
80 percent of cities reported being less able to meet the fiscal needs 
of their communities relative to fiscal year 2019.\273\ Surveys of 
Tribal governments and Tribal enterprises conducted in 2020 found 
majorities of respondents reporting substantial cost increases and 
revenue decreases, with Tribal governments reporting reductions in 
health care, housing, social services, and economic development 
activities as a result of reduced revenues.\274\
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    \271\ In the second quarter of 2020, quarterly state and local 
tax revenues as reported by the U.S. Census Bureau fell 19 percent 
compared to the second quarter of 2019; U.S. Census Bureau, 
Quarterly Summary of State and Local Tax Revenue, https://www.census.gov/programs-surveys/qtax.html.
    \272\ National Association of State Budget Officers, Fiscal 
Survey of the States (Fall 2020), available at https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/NASBO_Fall_2020_Fiscal_Survey_of_States_S.pdf.
    \273\ National League of Cities, City Fiscal Conditions (2020), 
available at https://www.nlc.org/wp-content/uploads/2020/08/City_Fiscal_Conditions_2020_FINAL.pdf.
    \274\ Surveys conducted by the Center for Indian Country 
Development at the Federal Reserve Bank of Minneapolis in March, 
April, and September 2020. Elijah Moreno & Heather Sobrepena, Tribal 
entities remain resilient as COVID-19 batters their finances, 
Federal Reserve Bank of Minneapolis (Nov. 10, 2020), https://www.minneapolisfed.org/article/2020/tribal-entities-remain-resilient-as-covid-19-batters-their-finances.
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    The economic recovery, aided by the broad distribution of COVID-19 
vaccines and the deployment of federal stimulus, has led to a strong 
rebound in total state and local government revenue and is contributing 
to a brighter fiscal

[[Page 4401]]

outlook for most jurisdictions as compared to the earlier months of the 
public health emergency. For the fiscal year ending June 30, 2021, 
total state and local government tax revenues increased 21 percent 
relative to the same period in 2020, reflecting the combined impact of 
the modified tax filing deadline in 2020 and an improving economy.\275\ 
However, despite a stable budget situation overall, many governments 
face uncertainty as the COVID-19 pandemic continues to impact commuting 
patterns, hospitality and tourism, and other drivers of jurisdictions' 
economies. Thirty-five percent of cities still report being less able 
to meet financial needs than in fiscal year 2020,\276\ and over half of 
surveyed Tribal governments and Tribal enterprises reported losing at 
least 40 percent of their revenue since the start of the pandemic.\277\ 
Budget challenges persist as governments work to mitigate and contain 
COVID-19 and help citizens weather the economic downturn.
---------------------------------------------------------------------------

    \275\ Analysis of Quarterly Summary of State and Local Tax 
Revenue, U.S. Census Bureau, supra note 271.
    \276\ National League of Cities, City Fiscal Conditions (2021), 
available at https://www.nlc.org/wp-content/uploads/2021/10/2021-City-Fiscal-Conditions-Report-2021.pdf.
    \277\ Center for Indian Country Development and Federal Reserve 
Bank of Minneapolis, One Year Into COVID-19, Pandemic's Negative 
Effects Persist in Indian Country (May 2021), available at https://www.minneapolisfed.org/article/2021/one-year-into-covid-19-pandemics-negative-effects-persist-in-indian-country.
---------------------------------------------------------------------------

    State, local, and Tribal government budgets affect the broader 
economic recovery. During the period following the 2007-2009 recession, 
state and local government budget pressures led to fiscal austerity 
that was a significant drag on the overall economic recovery.\278\ 
Inflation-adjusted state and local government revenue did not return to 
the previous peak until 2013,\279\ while employment in the sector 
returned to the previous peak in August 2019, nearly a decade 
later.\280\ Just months after recouping losses from the previous 
downturn, the COVID-19 pandemic caused state and local government 
employment to contract again, but this time more sharply: By May 2020, 
state and local government payrolls fell 7.7 percent compared to 
February 2020. Despite improvement, non-federal public sector job 
growth continues to lag behind the rest of the U.S. labor market 
recovery.\281\
---------------------------------------------------------------------------

    \278\ See, e.g., Nora Fitzpatrick et al., Fiscal Drag from the 
State and Local Sector?, Liberty Street Economics Blog, Federal 
Reserve Bank of New York (June 27, 2012), https://libertystreeteconomics.newyorkfed.org/2012/06/fiscal-drag-from-the-state-and-local-sector.html; Jiri Jonas, Great Recession and Fiscal 
Squeeze at U.S. Subnational Government Level, IMF Working Paper 12/
184, (July 2012), available at https://www.imf.org/external/pubs/ft/wp/2012/wp12184.pdf; Gordon, supra note 16.
    \279\ State and local government general revenue from own 
sources, adjusted for inflation using the Bureau of Economic 
Analysis' implicit price deflator for GDP. U.S. Census Bureau, 
Annual Survey of State Government Finances and U.S. Bureau of 
Economic Analysis, National Income and Product Accounts, https://www.census.gov/programs-surveys/gov-finances.html.
    \280\ U.S. Bureau of Labor Statistics, All Employees, State 
Government [CES9092000001] and All Employees, Local Government 
[CES9093000001], retrieved from FRED, Federal Reserve Bank of St. 
Louis, https://fred.stlouisfed.org/series/CES9092000001 and https://fred.stlouisfed.org/series/CES9093000001.
    \281\ Pew Research, State and Local Government Job Growth Lags 
as Economy Recovers (September 2021), available at https://www.pewtrusts.org/en/research-and-analysis/articles/2021/09/14/state-and-local-government-job-growth-lags-as-economy-recovers.
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Summary of Interim Final Rule
    As stated above, the Social Security Act provides that SLFRF funds 
may be used ``for the provision of government services to the extent of 
the reduction in revenue of such . . . government due to the COVID-19 
public health emergency relative to revenues collected in the most 
recent full fiscal year of the . . . government prior to the 
emergency.'' The interim final rule provided a formula for calculating 
revenue loss through a four-step process:
    <bullet> Step 1: Identify revenues collected in the most recent 
full fiscal year prior to the public health emergency (i.e., last full 
fiscal year before January 27, 2020), called the base year revenue.
    <bullet> Step 2: Estimate counterfactual revenue, which is the 
amount of revenue the recipient would have expected in the absence of 
the downturn caused by the pandemic. The counterfactual revenue is 
equal to base year revenue * [(1 + growth adjustment) [caret] (n/12)], 
where n is the number of months elapsed since the end of the base year 
to the calculation date, and growth adjustment is the greater of the 
average annual growth rate across all State and Local Government 
``General Revenue from Own Sources'' in the most recent three years 
prior to the emergency, 5.2 percent, or the recipient's average annual 
revenue growth in the three full fiscal years prior to the COVID-19 
public health emergency.\282\ This approach to the growth rate provides 
recipients with the option to use a standardized growth adjustment when 
calculating the counterfactual revenue trend and thus minimizes 
administrative burden, while not disadvantaging recipients with revenue 
growth that exceeded the national average prior to the COVID-19 public 
health emergency by permitting these recipients to use their own 
revenue growth rate over the preceding three years.
---------------------------------------------------------------------------

    \282\ At the time the interim final rule was published, the 
average annual growth across all state and local government 
``General Revenue from Own Sources'' in the most recent three years 
of available data (2015-2018) was 4.1%, which was presented as one 
option for the growth adjustment. Since the interim final rule was 
published, 2019 data has been made available, which increases this 
rate to 5.2%. The final rule updates the percentage to 5.2%, as 
shown in Step 2.
---------------------------------------------------------------------------

    <bullet> Step 3: Identify actual revenue,\283\ which equals 
revenues collected over the twelve months immediately preceding the 
calculation date.
---------------------------------------------------------------------------

    \283\ As explained below, in the final rule, recipients must 
adjust actual revenue amounts based on certain tax policy changes.
---------------------------------------------------------------------------

    <bullet> Step 4: The extent of the reduction in revenue is equal to 
counterfactual revenue less actual revenue. If actual revenue exceeds 
counterfactual revenue, the extent of the reduction in revenue is set 
to zero for that calculation date.
    For illustration, consider a hypothetical recipient with base year 
revenue equal to 100 (Step 1) that ends on June 30, 2019. In Step 2, 
the hypothetical recipient finds that the average annual growth across 
all state and local government ``General Revenue from Own Sources'' in 
the most recent three years of available data, 5.2 percent, is greater 
than the recipient's average annual revenue growth in the three full 
fiscal years prior to the public health emergency. In this 
illustration, n (months elapsed) and counterfactual revenue would be 
equal to:

 
----------------------------------------------------------------------------------------------------------------
                     As of:                         12/31/2020      12/31/2021      12/31/2022      12/31/2023
----------------------------------------------------------------------------------------------------------------
n (months elapsed)..............................              18              30              42              54
Counterfactual revenue:.........................           107.9           113.5           119.4           125.6
----------------------------------------------------------------------------------------------------------------


[[Page 4402]]

    The figure below illustrates the reduction in revenue for the 
hypothetical recipient calculated in accordance with the methodology.
[GRAPHIC] [TIFF OMITTED] TR27JA22.000

    Finally, as explained in greater detail below, the clear meaning of 
the statutory phrase ``due to the COVID-19 public health emergency'' is 
that it is referring to revenue reductions caused by the public health 
emergency. As such, it does not include revenue reduced for reasons 
other than the public health emergency. Treasury in the interim final 
rule presumed that any reduction in revenue relative to the 
counterfactual estimate would be considered revenue lost due to the 
pandemic and thereby relieved recipients of the administrative burden 
of determining the extent to which reduction in revenue was due to the 
public health emergency. The calculation methodology in the interim 
final rule implicitly assumed that recipients did not suffer a loss in 
revenue due to the public health emergency if they did not experience a 
reduction in aggregate revenue compared to the counterfactual estimate. 
The interim final rule invited comments on whether Treasury should 
revise its presumption to ``take into account other factors, including 
actions taken by the recipient as well as the expiration of the COVID-
19 public health emergency, in determining whether to presume that 
revenue losses are `due to' the COVID-19 public health emergency.''
    Treasury received a substantial number of comments on the revenue 
loss provisions set forth in the interim final rule. These comments 
largely pertained to the following topics: The overall methodology for 
calculating revenue loss; the definition of ``revenue''; whether 
revenue should be aggregated or calculated on some alternative basis 
(e.g., source-by-source or fund-by-fund); the appropriate calculation 
dates (i.e., fiscal year or calendar year); the presumption that all 
revenue loss is due to the pandemic; the base year; and the definition 
of ``government services.''
Overall Methodology for Calculating Revenue Loss
    As noted above, the interim final rule provided a formula for 
recipients to calculate revenue loss by comparing actual revenues 
received during a given time-period with a counterfactual amount of 
revenue based on revenues in the base year and an adjustment for 
expected growth in revenue each year.
    Public Comment: Treasury received many public comments on the 
overall methodology for calculating revenue loss. Some recipients, 
including smaller governments, have expressed concern regarding the 
burden associated with the calculation of revenue loss, particularly 
the burden involved in calculating the amount of general revenue, given 
that the definition of general revenue in the interim final rule does 
not always align with the definition of revenue already calculated by 
recipients for other purposes, and requested clarifications regarding a 
number of components, including the definition of revenue. Commenters 
also asked for clarification on the relationship between revenue loss 
calculations across different calculation dates. Other commenters 
argued that the revenue loss formula does not precisely capture the 
nuances of local revenues or their particular situation. For example, 
some commenters stated that requiring that revenues be aggregated fails 
to capture decreases in revenue sources that cannot easily be made up 
for with other revenue sources.
    Treasury Response: In the final rule, Treasury is largely 
maintaining the revenue loss formula as set forth in the interim final 
rule. To address comments that the formula for calculating revenue loss 
was difficult to apply, Treasury is including an option for recipients 
to use a standard allowance for revenue loss. Specifically, in the 
final rule, recipients will be permitted to elect a fixed amount of 
loss that can then be used to fund government services. This fixed

[[Page 4403]]

amount, referred to as the ``standard allowance,'' is set at up to $10 
million total for the entire period of performance not to exceed the 
recipient's SLFRF award amount. Although Treasury anticipates that this 
standard allowance will be most helpful to smaller local governments 
and Tribal governments, any recipient can use this standard allowance 
instead of calculating revenue loss pursuant to the formula above, so 
long as recipients employ a consistent methodology across the period of 
performance (i.e., choose either the standard allowance or the regular 
formula). Treasury intends to amend its reporting forms to provide a 
mechanism for recipients to make a one-time, irrevocable election to 
utilize either the revenue loss formula or the standard allowance.
    The $10 million level is based on average revenue loss across state 
and local governments, taking into consideration potential variation in 
revenue types and losses and continued uncertainty faced by many 
recipients regarding revenue shortfalls. To calculate this estimate, 
Treasury applied a variation of the final rule's revenue loss 
calculation on available aggregate state and local government tax 
revenue data as reported by the Census Bureau for the first calculation 
date of December 31, 2020. This estimate accounts for expected 
variation across recipient experiences and reflects the fact that the 
final rule revenue loss calculation provides recipients several options 
for specific aspects (e.g., calendar year or fiscal year basis; use of 
average state and local revenue growth rate or specific local rate). 
Treasury compared actual calendar year 2020 tax revenues, in aggregate 
for all state and local governments, to several counterfactual trends 
that vary based on the end date of the fiscal base year.\284\ Treasury 
also assessed counterfactual trends using different revenue growth 
rates (e.g., the three-year average growth rates of total state and 
local government general revenue for both fiscal years ending in 2016-
2018 and fiscal years ending in 2017-2019; the three-year average 
growth rates of total state and local government tax revenues for 
fiscal years ending in 2017-2019; and the one-year growth rate for 
total state and local government tax revenue in the last full fiscal 
year before the public health emergency). To account for the fact that 
the initial estimate, based on tax revenue, only includes a subset of 
recipient aggregate general revenue, Treasury applied a scaling factor 
to recognize that tax revenues generally make up just over half of 
general revenue collected by state and local governments (i.e., 
Treasury scaled up its estimate based on tax revenue to produce an 
estimate for total general revenue).\285\ The resulting calculation was 
then extrapolated over the four-year period of performance and divided 
by a population of interest to arrive at an average loss estimate.
---------------------------------------------------------------------------

    \284\ Because the Census Bureau's state and local government tax 
revenue data is reported on a quarterly frequency, fiscal base year 
end dates of March 31, June 30, September 30, and December 31 were 
used in this assessment.
    \285\ Annual Survey of State and Local Government Finances 
(2019).
---------------------------------------------------------------------------

    As noted above, Treasury estimated a range of scenarios to account 
for different values of the variables that would impact average losses. 
For example, the end date of the fiscal base year and growth rate of 
counterfactual revenue impact the overall estimate of revenue loss. In 
addition, this estimate takes into consideration the limitations in the 
available data. The governments covered by the Census Bureau's survey 
do not entirely align with SLFRF recipients. The Census Bureau's 
figures are based on 50 state governments, all local government 
property tax collectors and local government non-property tax imposers, 
representing at a minimum the more than 38,000 ``General Purpose 
Governments'' defined by Census. However, there are only roughly 32,000 
recipients of SLFRF funds. Thus, Treasury considered the difference 
between the number and type of entities in the Census Bureau data and 
the SLFRF recipients.
    Based on this methodology, Treasury estimates that average revenue 
loss (determined by comparing the counterfactual revenue to actual 
revenue) may range from $0 to $11.7 million per recipient over the 
period of performance.\286\ Treasury settled on a point estimate toward 
the upper end of the range of potential averages, in part, to account 
for significant variation in the experiences of recipient governments: 
Some recipients likely experienced losses at the upper end of this 
range of potential averages. A point estimate toward the upper end of 
the range errs toward ensuring more recipients' experiences are covered 
and increases the utility of the standard allowance for SLFRF 
recipients. Specifically, the program includes a very large number of 
recipients with relatively smaller awards; these recipients have tended 
to describe having greater difficulty completing the regular revenue 
loss calculation. Thus, selecting a point estimate toward the higher 
end of the expected range not only increases the likelihood that the 
standard allowance will reflect the experience of a larger number of 
SLFRF recipients but is more responsive to the comments of those with 
smaller awards. In addition, using a point estimate toward the upper 
end of the range accounts for the difficulty and uncertainty in 
predicting revenue losses years into the future, throughout the period 
of performance.\287\
---------------------------------------------------------------------------

    \286\ This is the range of averages that Treasury calculated by 
varying the aforementioned assumptions.
    \287\ See, e.g., Government Accountability Office, State and 
Local Governments: Fiscal Conditions During the COVID-19 Pandemic in 
Selected States (July 2021) (noting that ``[s]tate and local 
government revenues partly depend on the overall economy, and 
actions to stem the spread of the virus drastically reduced economic 
activity.''); Board of Governors of the Federal Reserve System, 
Monetary Policy Report (July 9, 2021) (noting that the pandemic 
``pushed down state and local government tax collections'' and that 
while some of the drag is ``abating'' state and local ``government 
payrolls . . . have only edged up from their lows at the onset of 
the pandemic'').
---------------------------------------------------------------------------

    Finally, Treasury selected a single allowance level, as opposed to 
varying levels, to further the goals of simplicity, flexibility, and 
administrability. Furthermore, data limitations make it difficult to 
distinguish between types of local governments.\288\
---------------------------------------------------------------------------

    \288\ Local government tax revenue data in the Census Bureau's 
Quarterly Summary of State and Local Tax Revenue, supra note 271, is 
provided on an aggregated basis.
---------------------------------------------------------------------------

General Revenue
    The interim final rule adopted a definition of ``general revenue'' 
based largely on the components reported under ``General Revenue from 
Own Sources'' in the Census Bureau's Annual Survey of State and Local 
Government Finances. Under the interim final rule, general revenue 
included revenue collected by a recipient and generated from its 
underlying economy, and it would capture a range of different types of 
tax revenues, as well as other types of revenue that are available to 
support government services.\289\ Specifically, revenue under the 
interim final rule included money that is received from tax revenue, 
current charges, and miscellaneous general revenues and excluded 
refunds and other correcting transactions, proceeds from issuance of 
debt or the sale of investments, agency or private trust transactions, 
revenue from utilities, social insurance trust revenues, and 
intergovernmental

[[Page 4404]]

transfers from the federal government, including transfers made 
pursuant to section 9901 of the ARPA.\290\ In the case of Tribal 
governments, it also included revenue from Tribal business enterprises.
---------------------------------------------------------------------------

    \289\ The Department also released guidance clarifying how a 
recipient may determine whether a particular entity is ``part of the 
recipient's government.'' See FAQ 3.14. Coronavirus State and Local 
Fiscal Recovery Funds, Frequently Asked Questions, as of July 19, 
2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
    \290\ The interim final rule stated that ``general revenue'' and 
``tax revenue'' excludes refunds and other correcting transactions. 
Instead of ``excluding'' refunds and other correcting transactions, 
the Census Bureau methodology upon which those definitions are based 
provides that general revenue and tax revenue are determined ``net 
of'' refunds and other correcting transactions. The use of 
``excluding'' in the interim final rule is substantively the same as 
the Census Bureau methodology. However, to be consistent with the 
terminology used by the Census Bureau, the final rule uses ``net 
of'' instead of ``excluding.'' Current charges are defined as 
``charges imposed for providing current services or for the sale of 
products in connection with general government activities.'' It 
includes revenues such as public education institution, public 
hospital, and toll revenues. Miscellaneous general revenue comprises 
of all other general revenue of governments from their own sources 
(i.e., other than utility and insurance trust revenue), including 
rents, royalties, lottery proceeds, and fines.
---------------------------------------------------------------------------

    Public Comment: Many commenters asked Treasury to include certain 
items in the definition of ``general revenue.'' For instance, several 
commenters that operate their own utilities asked that revenue from 
utilities be included, arguing that declines in utility revenue 
directly affect contributions to their general funds. Many of these 
commenters noted that moratoriums on utility shutoffs and a decline in 
collections have resulted in significant budgetary pressures.
    Some commenters also asked for the exclusion of certain 
intergovernmental transfers in the definition of general revenue, 
including transfers of shared revenue from the state.\291\ Other 
commenters asked for the inclusion of certain transfers from the 
federal government, including fees paid for services and grants that 
are, in effect, paid for the provision of services.
---------------------------------------------------------------------------

    \291\ The interim final rule excluded governmental transfers 
from the Federal Government, but it did not exclude 
intergovernmental transfers from other governmental units for 
purposes of the revenue loss provisions.
---------------------------------------------------------------------------

    Treasury also received multiple requests to include revenue from 
Tribal enterprises in the definition of ``general revenue'' and that 
``Tribal enterprise'' be defined broadly. Others asked for the ability 
to choose whether to include revenue from Tribal enterprises.
    Finally, some commenters requested that the definition of general 
revenue exclude certain sources of revenue, such as revenue sources 
that do not support a general fund (i.e., revenue sources that are 
restricted in use). Commenters also asked that general revenue exclude 
revenue from special assessments, settlements that make the recipient 
whole for past expenditures, and one-time revenues such as revenue from 
the sale of property.
    Treasury Response: In the final rule, Treasury has maintained the 
definition of ``general revenue'' from the interim final rule with two 
exceptions.
    Treasury has adjusted the definition to allow recipients that 
operate utilities that are part of their own government to choose 
whether to include revenue from these utilities in their revenue loss 
calculation. This change responds to comments from recipients 
indicating that revenue from utilities is used to fund other government 
services and that utility revenues have declined on aggregate.\292\ 
This approach is consistent with other eligible uses, which recognize 
decreased ability of many households to make utility payments; see 
section Assistance to Households, which identifies utility assistance 
as an enumerated eligible use of funds, including through direct or 
bulk payments to utilities for consumer assistance. Furthermore, for 
utilities or other entities (e.g., certain service districts) that are 
not part of the recipient government, a transfer from the utility to 
the recipient constitutes an intergovernmental transfer and therefore 
is included in the definition of ``general revenue.'' \293\
---------------------------------------------------------------------------

    \292\ U.S. Energy Information Administration, Annual Electric 
Utility Data (October 2021), available at https://www.eia.gov/electricity/sales_revenue_price/.
    \293\ FAQ 3.14 provides further guidance on how to determine 
what entities constitute a government for purposes of calculating 
revenue loss. See Coronavirus State and Local Fiscal Recovery Funds, 
Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
---------------------------------------------------------------------------

    Treasury has also added liquor store revenue to the definition of 
general revenue. The Supplemental Information to the interim final rule 
stated that the definition of tax revenue would include liquor store 
revenue, but the text of the rule did not include it. Accordingly, in 
the final rule, Treasury is clarifying that revenue includes liquor 
store revenue. However, Treasury believes revenue from government-owned 
liquor stores is better classified as general revenue than it is as tax 
revenue, so the final rule includes it as part of general revenue.
    In response to requests that the definition of general revenue 
exclude revenue from special assessments, settlements that make the 
recipient whole for past expenditures, and one-time revenues such as 
revenue from the sale of property, Treasury is maintaining its position 
in the final rule that such revenue is included in general revenue. 
While such revenues may be less predictable than other sources of 
revenue (e.g., property taxes), these are not uncommon sources of 
revenue for recipients, and their inclusion provides a more complete 
view of the financial health of a recipient government and is 
consistent with the Census Bureau methodology. Treasury is also 
maintaining the exclusion of all payments from the federal government 
(including payments for services) from general revenue in order to 
avoid substantial dilution of the definition of revenue, particularly 
in light of extraordinary fiscal support provided during the pandemic. 
Treasury is maintaining the inclusion of intergovernmental transfers 
other than from the federal government for the reasons provided in the 
Supplemental Information to the interim final rule; to do otherwise 
would be to significantly distort the revenue calculations for local 
governments that regularly receive revenue sharing payments, for 
example, from their state governments. Treasury is also maintaining the 
approach that ``general revenue'' includes revenue from Tribal 
enterprises. This approach recognizes that these enterprises often form 
the revenue base for Tribal governments' budgets.
    To ease the burden on recipients and account for anomalous 
variations in revenue, as mentioned above, Treasury has incorporated a 
``standard allowance'' option into the final rule. A recipient may 
choose to use the standard allowance, which under the final rule is set 
at up to $10 million, not to exceed the recipient's SLFRF award amount, 
as an alternative to calculating revenue loss according to the formula 
described above. This addition will promote administrative efficiency 
and simplify the revenue loss calculation for the vast majority of 
recipients. Treasury intends to amend its reporting forms to provide a 
mechanism for recipients to elect to utilize either the revenue loss 
formula or the standard allowance, in addition to other changes made as 
part of the final rule.
Aggregate Revenue Loss Calculation
    Under the interim final rule, revenue loss was calculated based on 
aggregate revenues and therefore loss in one type of revenue could be 
offset by gains in another. The amount of SLFRF funds available to 
provide government services was based on overall net revenue loss. In 
the Supplementary Information to the interim final rule, Treasury asked 
commenters to discuss the advantages and disadvantages of, and any 
potential concerns with, this approach, including circumstances in 
which it could be necessary or

[[Page 4405]]

appropriate to calculate the reduction in revenue by source.
    Public Comment: Treasury received many comments stating that 
revenue loss should be calculated on a source-by-source basis. Some 
commenters argued that a source-by-source approach would be 
administratively simpler. Other commenters argued that calculating 
revenue loss source-by-source would better reflect the impact of the 
COVID-19 pandemic on their ability to fund government services because 
revenue gains in one source cannot always be used to make up for losses 
in another. For similar reasons, other commenters asked that revenue 
loss be calculated on a fund basis.
    Treasury Response: Treasury considered alternative methods (e.g., 
source-by-source, fund-by-fund) but ultimately determined to maintain 
the calculation of revenue loss in the aggregate. The pandemic has had 
different effects on recipients (and their revenues), and Treasury 
recognized that one particular type of revenue or one particular source 
may have experienced a greater amount of loss for some recipients. 
However, the statute refers only to ``the reduction in revenue of such 
State, local government, or Tribal government.'' The statute is thus 
clear that Treasury is to refer to the aggregate revenue reduction of 
the recipient due to the public health emergency. Further, this 
provision is designed to address declines in the recipients' overall 
ability to pay for governmental services, and calculating revenue loss 
on an aggregate basis provides a more accurate representation of the 
effect of the pandemic on overall revenues and the fiscal health of the 
recipient. In many circumstances, recipient governments have 
flexibility to use revenues from an array of sources and offset 
declines in some sources with gains in others. While the details and 
configuration of this flexibility vary widely across recipient 
governments, calculating revenue loss on a source-by-source or fund-by-
fund basis would not capture how recipient governments balance their 
budgets in the regular course of business. Accordingly, the final rule 
maintains the requirement that revenue loss is to be calculated on an 
aggregate basis.
Calculation Dates
    Public Comment: Under the interim final rule, recipients calculate 
revenue loss as of the end of the calendar year. Treasury received many 
comments requesting that recipients be permitted to calculate revenue 
loss as of the end of their fiscal year. Commenters argued that doing 
so would be simpler and less burdensome on recipients and that 
financial data as of the end of the fiscal year is audited and 
therefore more reliable. Commenters also argued that recipients' fiscal 
years are structured around the timing of major revenue sources, and 
that the Census Bureau uses fiscal years in its Annual Survey.
    Treasury also received comments about the use of multiple 
calculation dates. Several Tribal governments stated that they would 
not see ongoing revenue losses due to the COVID-19 public health 
emergency and asked to be able to determine revenue loss as of the 
first calculation date. Several commenters asked whether revenue loss 
is determined independently for each year, so that a gain in one year 
does not offset a loss in another, or whether revenue loss is 
cumulative from the beginning of the pandemic.
    Treasury Response: In the final rule, Treasury has made adjustments 
to give recipients more flexibility with respect to calculation dates 
and to clarify certain elements. Specifically, the final rule provides 
recipients the option to choose whether to calculate revenue loss on a 
fiscal year or calendar year basis, though they must choose a 
consistent basis for loss calculations throughout the period of 
performance. Treasury has also clarified in the final rule that revenue 
loss is calculated separately for each year such that the calculation 
of revenue lost in one year does not affect the calculation of revenue 
lost in prior or future years.
Presumption That Revenue Loss Is Due to the Pandemic
    As stated above, sections 602(c)(1)(C) and 603(c)(1)(C) of the 
Social Security Act provide that SLFRF funds may be used ``for the 
provision of government services to the extent of the reduction in 
revenue of such . . . government due to the COVID-19 public health 
emergency relative to revenues collected in the most recent full fiscal 
year of the . . . government prior to the emergency.'' As discussed in 
the interim final rule, although revenue may decline for reasons 
unrelated to COVID-19, in order to minimize the administrative burden 
on recipients in calculating revenue loss and take into consideration 
the devastating effects of the COVID-19 public health emergency, any 
reduction in revenue relative to the counterfactual estimate was 
presumed in the interim final rule to be considered revenue lost due to 
the pandemic.
    Treasury stated in the Supplementary Information to the interim 
final rule that it was considering when, if ever, during the period of 
performance it would be appropriate to reevaluate the presumption that 
all losses are attributable to the public health emergency. Treasury 
also sought comment on whether to take into account other factors, 
including actions taken by the recipient as well as the expiration of 
the COVID-19 public health emergency, in determining whether to presume 
that revenue losses are ``due to'' the COVID-19 public health 
emergency.
    Public Comment: Treasury received many comments in support of the 
presumption, as well as some opposed. Some commenters argued that the 
presumption eases the administrative burden on recipients because, 
without it, it would be difficult to identify which losses are 
attributable to the COVID-19 public health emergency. Many commenters 
also argued that Treasury should maintain the presumption because 
recipients are likely to experience losses due to the public health 
emergency even after the end of the public health emergency. Treasury 
also received comments asking that it adjust any revenue loss 
calculation to account for tax changes enacted by the recipient. In 
particular, some commenters noted that some recipients had increased 
taxes in order to meet additional demands for government services or to 
address declines in revenue due to the pandemic. These tax increases 
have in some cases offset some or all of the actual revenue loss 
attributable to the public health emergency. Because the interim final 
rule calculates revenue loss by reference to actual revenue collected, 
commenters argued that the calculation of revenue loss ``due to'' the 
public health emergency needs to take into consideration the effects of 
tax increases by deducting the effect of these tax increases from 
actual revenue collected.
    Treasury Response: In the final rule, Treasury has maintained the 
presumption that a reduction in a recipient's revenue is due to the 
public health emergency with certain adjustments to respond to comments 
and to better account for revenue loss ``due to the COVID-19 public 
health emergency.'' The final rule makes adjustments to the presumption 
to take into account certain government actions to change tax policy. 
In particular, Treasury is adjusting the presumption to account for 
changes to tax policy by providing that changes in revenue that are 
caused by tax increases or decreases adopted after the issuance of the 
final rule will not be treated as due to the public health emergency.

[[Page 4406]]

Presumption of Revenue Loss ``Due To'' the Pandemic
    In enacting sections 602(c)(1)(C) and 603(c)(1)(C) of the Social 
Security Act, Congress provided that a state, local government, or 
Tribal government could use funds to ``cover costs . . . for the 
provision of government services,'' but only ``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.'' In doing so, Congress recognized that the 
pandemic was causing significant disruption to economic activity and 
sought to minimize the impact of associated revenue losses on the 
ability of the recipient to provide government services when such 
services were needed most.\294\ The text of the statute itself 
reinforces this important context: The law specifically limits funds to 
cover revenue losses that both are ``due to the COVID-19 public health 
emergency'' and could impact ``the provision of government services.''
---------------------------------------------------------------------------

    \294\ See also sections 602(a)(1) and 603(a) of the Social 
Security Act (appropriating the funds for payment to recipients in 
order to ``mitigate the fiscal effects stemming from the public 
health emergency'').
---------------------------------------------------------------------------

    Courts have recognized that the phrase ``due to'' can refer to 
various causal standards.\295\ Here, in the context of Congress's 
addressing economic disruptions caused by the COVID-19 pandemic that 
could impact both revenues and government services, the key 
consideration is whether a revenue loss experienced by the recipient 
resulted from the exogenous impacts of the public health emergency (and 
were thus ``due to'' the pandemic) or instead from the recipient's own 
discretionary actions (and, in this context, were not ``due to'' the 
pandemic). Reductions in revenue due to the public health emergency 
does not cover revenue reductions that resulted from a recipient's own 
discretionary actions.
---------------------------------------------------------------------------

    \295\ U.S. Postal Service v. Postal Regulatory Comm'n, 640 F.3d 
1263 (D.C. Cir. 2011); see Kimber v. Thiokol Corp., 196 F.3d 1092, 
1100 (10th Cir. 1999); Adams v. Director, OWCP, 886 F.2d 818, 821 
(6th Cir. 1989).
---------------------------------------------------------------------------

    In the interim final rule, Treasury included a presumption that all 
revenue loss is due to the pandemic in order to minimize the 
administrative burden on recipients discussed above and take into 
consideration the devastating effects of the COVID-19 public health 
emergency. Based on comments, Treasury believes that the reasons for 
the presumption continue to be valid and has determined to maintain the 
presumption in the final rule with certain modifications. In 
particular, at this point in the course of the pandemic, with the 
fiscal pressure on state and local governments having been 
significantly reduced, it is appropriate for Treasury to reassess 
aspects of this presumption. As discussed below, the final rule 
requires recipients to exclude the value of tax policy changes adopted 
after January 6, 2022.
    Recipients of the SLFRF range from states to the smallest local 
governments. At the time that the interim final rule was adopted, it 
was important for recipients to be able to calculate with ease and 
certainty their amount of revenue loss so that they could begin 
deploying these funds to continue to maintain essential government 
services. To this end, the presumption in the interim final rule 
provided a relatively simple formula for all recipients to use, but the 
exigent need for recipients to immediately deploy funds for the 
provision of government services has decreased and the benefit of the 
presumption in reducing administrative burden is less relevant for 
those governments that are not likely to avail themselves of the 
standard allowance described above.
    Consistent with these considerations, the final rule requires 
recipients to exclude revenue loss due to tax changes adopted after 
January 6, 2022. Eliminating revenue loss due to tax changes from the 
presumption is appropriate given the significance of tax revenue as a 
portion of all revenue for state and local governments, the direct 
impact of tax policy decisions on revenue collected, and the relative 
ease with which recipients can isolate the estimated effect of a tax 
change on revenue.\296\ Most state budgeting processes require a 
``budget score,'' often developed through a consensus process with 
executive and legislative branch experts,\297\ and Treasury expects 
that larger localities, those most likely to utilize the revenue loss 
formula rather than the standard allowance, also regularly use revenue 
or budget estimates when considering changes to tax policies. As such, 
in many cases, recipients already prepare estimates of the impact of 
tax changes on revenue, and as discussed below, Treasury will generally 
permit recipients to rely on such estimates in adjusting their revenue 
loss calculations.
---------------------------------------------------------------------------

    \296\ Treasury considered whether to also eliminate the 
presumption with respect to losses resulting from other changes in 
policy, such as decreases in user fees or fines. However, the 
effects of these changes are more minor overall and would be more 
challenging to accurately identify and quantify, so the 
administrability benefit of the presumption for recipients outweighs 
whatever distortion there might be as a result of not reflecting 
such changes.
    \297\ See generally, National Association of State Budget 
Officers, Budget Processes in the States, (2021), available at 
https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Budget%20Processess/NASBO_2021_Budget_Processes_in_the_States_S.pdf.
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    Reductions in revenue that are not attributable to tax changes 
would continue to be subject to the presumption. A requirement that 
recipients evaluate the revenue effect of changes in discretionary 
policy actions other than tax changes would be more difficult for 
recipients than evaluating the changes attributable to tax changes 
given that state and local governments do not generally prepare 
estimates of the revenue effects of other actions. Finally, as noted 
above, taxes are the single largest source of revenue for state and 
local government recipients in the aggregate.
Revisions to Presumption To Address Tax Reductions
    For these reasons, Treasury is providing in the final rule that 
changes in general revenue that are caused by tax cuts adopted after 
the date of adoption of the final rule (January 6, 2022) will not be 
treated as due to the public health emergency, and the estimated fiscal 
impact of such tax cuts must be added to the calculation of ``actual 
revenue'' for purposes of calculation dates that occur on or after 
April 1, 2022. Tax cuts include final legislative or regulatory action 
or a new or changed administrative interpretation that reduces any tax 
(by providing for a reduction in a rate, a rebate, a deduction, a 
credit, or otherwise) or delays the imposition of any tax or tax 
increase and that the recipient assesses has had the effect of reducing 
tax revenue relative to current law. This includes the phase-in or 
taking effect of any statute or rule if the phase-in or taking effect 
was not prescribed prior to the issuance of the final rule.
    In assessing whether a tax change has had the effect of reducing 
tax revenue, recipients may either calculate the actual effect on 
revenue or rely on estimates prepared at the time the tax change was 
adopted. More specifically, recipients may rely on information 
typically prepared in the course of developing the budget (e.g., 
expected revenues) and/or considering tax changes (e.g., budget scores, 
revenue notes) to determine the amount of revenue that would have been 
collected in the absence of the tax cut, as long as those estimates are 
based on reasonable assumptions and do not use dynamic methodologies 
that incorporate the projected effects of macroeconomic growth, given 
that macroeconomic

[[Page 4407]]

growth is accounted for in the counterfactual growth assumptions. 
Recipients that choose to calculate the actual effect of a tax change 
on revenue must similarly base their calculations on reasonable 
estimates that do not use dynamic methodologies. Recipients should 
apply this adjustment in determining their actual revenue totals at 
Step 3 in the revenue loss calculation described above.
Revisions to Presumption To Address Tax Increases
    As noted above, the calculation methodology in the interim final 
rule implicitly assumed that recipients did not experience a reduction 
in revenue due to the public health emergency if they did not 
experience a reduction in aggregate revenue relative to the 
counterfactual estimate. Treasury recognizes that some recipients may 
have experienced a reduction in revenue due to the public health 
emergency that was offset by other revenue, particularly in the case of 
increases to tax revenue resulting from a tax increase. The final rule 
requires recipients that increased taxes to deduct the amount of 
increases to revenue attributable to such tax increase. This change is 
also consistent with the incorporation in the interim final rule and 
final rule of a counterfactual growth rate, which effectively permits 
recipients to count revenue losses due to the public health emergency 
that are offset by increased tax revenue resulting from organic growth.
    For these reasons, Treasury is providing in the final rule that 
recipients must subtract from their calculation of actual revenue the 
effect of tax increases adopted after the date of adoption of this 
final rule (January 6, 2022) for purposes of calculation dates that 
occur on or after April 1, 2022. This change and the change to the 
final rule described above treat tax changes in a consistent manner: In 
the case of reduction in revenue resulting from a tax cut, a recipient 
must add the amount of that reduction to its calculation of actual 
revenue, and in the case of an increase in revenue resulting from a tax 
increase, a recipient must subtract the amount of additional revenue 
collected as a result of the tax increase from its calculation of 
actual revenue.\298\
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    \298\ The final rule does not permit recipients to reflect the 
effects of other changes in policy, such as increases in fees 
adopted after adoption of the final rule. Treasury understands that 
the main beneficiaries of such a change would be those recipients 
that will benefit from the standard allowance provided for in the 
final rule and that for other recipients the administrative burden 
on recipients needed to calculate these adjustments would outweigh 
the benefit of having a somewhat larger amount of funds available 
for government services.
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    As is the case with tax cuts, discussed above, tax increases that 
must be reflected in the calculation of revenue include final 
legislative or regulatory action or a new or changed administrative 
interpretation that increases any tax and that the recipient assesses 
has had the effect of increasing tax revenue relative to current law. 
In assessing whether a tax change has had the effect of increasing tax 
revenue, recipients may either calculate the actual effect on revenue 
or rely on estimates prepared at the time the tax change was adopted. 
Recipients may rely on information typically prepared in the course of 
developing the budget (e.g., expected revenues) and/or considering tax 
changes (e.g., budget scores, revenue notes) to determine the amount of 
revenue that was collected as a result of the tax increase as long as 
those estimates are based on reasonable assumptions and do not use 
dynamic methodologies that incorporate the projected effects of 
macroeconomic growth, given that macroeconomic growth is accounted for 
in the counterfactual growth assumptions. Recipients that choose to 
calculate the actual effect of a tax change on revenue must similarly 
base their calculations on reasonable estimates that do not use dynamic 
methodologies. Recipients should apply this adjustment in determining 
their actual revenue totals at Step 3 in the revenue loss calculation 
described above.
Previously Adopted Tax Changes
    As discussed above, the final rule will not require recipients to 
reflect the revenue effects of tax increases or decreases adopted prior 
to the adoption of the final rule. Recipients that adopted a tax change 
in a previous period will not be required to recalculate the amount of 
revenue loss as of prior calculation dates or to reflect the fiscal 
impacts of such tax changes in calculation dates after the effective 
date of the final rule. However, the final rule will permit recipients 
to elect to reflect the revenue effects of their tax changes adopted 
between the beginning of the public health emergency and the adoption 
of the final rule.\299\ If a recipient elects to do so, it must do so 
with respect to all of its tax changes adopted between the beginning of 
the public health emergency and the adoption of the final rule. 
Treasury intends to revise its reporting requirements to permit 
recipients to amend their previously reported calculation periods to 
reflect such changes.
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    \299\ The final rule also addresses the possibility that some 
recipients may have fiscal years ending during the period between 
January 6, 2022 and April 1, 2022; such recipients' election to 
reflect tax changes from prior periods would also apply to changes 
during this period with respect to the calculation date in this 
period.
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Determination of the Base Year
    Under the ARPA and interim final rule, SLFRF funds may be used 
``for the provision of government services to the extent of the 
reduction in revenue . . . relative to revenues collected in the most 
recent full fiscal year'' of the recipient. Therefore, the base year 
for the revenue loss calculation is the most recent full fiscal year 
prior to the COVID-19 public health emergency.
    Public Comment: Treasury received multiple comments asking for 
flexibility in determining base year revenues. For instance, some 
commenters asked to use a different base year than the ``most recent 
full fiscal year'' prior to the pandemic for calculating revenue loss; 
others asked to be able to average prior years. Commenters stated that, 
for various reasons, revenue was artificially low in the last full 
fiscal year prior to the public health emergency, and, therefore, using 
revenue in that year as the base year did not accurately reflect 
expected revenue in a normal year. For example, several Tribes stated 
that unforeseeable weather events resulted in forced closure of casinos 
which, in turn, artificially deflated revenues in the base year. Other 
commenters indicated that one-time anomalies in the timing of tax 
collection in that year artificially pushed revenue into the following 
fiscal year. Similarly, a few commenters noted that tax changes that 
took effect in the middle of the base year may artificially skew the 
size of the revenue loss experienced by the recipient government.
    Treasury Response: Treasury understands that recipients may have 
experienced events in the base year that led to lower or higher 
revenues than what they otherwise would have collected. The ARPA 
provides that revenue loss is to be determined with respect to revenue 
in the most recent full fiscal year prior to the pandemic, and 
therefore the final rule maintains its incorporation of the statutory 
definition.
    In calculating revenue loss, recipients may use data on a cash, 
accrual, or modified accrual basis, provided that recipients are 
consistent in their choice of methodology throughout the covered 
period, which might help recipients adjust to certain delays in revenue 
receipt. Both the standard allowance and elements of the formula (e.g.,

[[Page 4408]]

counterfactual growth rate) incorporate generous assumptions to give 
recipients flexibility and to account for variation among recipients' 
experiences during the pandemic.
Government Services
    The Supplemental Information to the interim final rule provided a 
non-exhaustive list of examples of services that are government 
services. The interim final rule also discussed why neither payment of 
debt service nor replenishing financial reserves constitutes government 
services, as these expenditures do not provide services but relate to 
the financing of such services. Similarly, government services under 
the interim final rule did not include satisfaction of any obligation 
arising under or pursuant to a settlement agreement, judgment, consent 
decree, or judicially confirmed debt restructuring in a judicial, 
administrative, or regulatory proceeding, unless the judgment or 
settlement required the provision of government services.
    Public Comment: Treasury received several comments requesting 
further clarification regarding the scope of government services, 
including asking for either a specific definition of government 
services or that a specific use be expressly deemed to be a government 
service. Some commenters disagreed with the exclusions from government 
services in the interim final rule. For instance, many of the comments 
Treasury received suggested that replenishing reserve funds and at 
least certain types of debt service should be treated as providing 
governmental services. Some commenters also suggested that a recipient 
should be able to use funds for costs incurred before March 3, 2021. 
Other commenters asked Treasury to maintain the prohibition on using 
the funds to pay debt service.
    Treasury Response: Treasury continues to believe that the lists of 
activities that either are or are not providing government services are 
accurate but is clarifying here that, generally speaking, services 
provided by the recipient governments are ``government services'' under 
the interim final rule and final rule, unless Treasury has stated 
otherwise. Government services include, but are not limited to, 
maintenance or pay-go funded building \300\ of infrastructure, 
including roads; modernization of cybersecurity, including hardware, 
software, and protection of critical infrastructure; health services; 
environmental remediation; school or educational services; and the 
provision of police, fire, and other public safety services.
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    \300\ Pay-go infrastructure funding refers to the practice of 
funding capital projects with cash-on-hand from taxes, fees, grants, 
and other sources, rather than with borrowed sums.
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    The aforementioned list of government services is not exclusive. 
However, recipients should be mindful that other restrictions may 
apply, including those articulated in the section Restrictions on Use. 
In the final rule, Treasury is maintaining the limitations on 
government services included in the interim final rule and has 
addressed and responded to public commenters on these issues in the 
section Restrictions on Use.

D. Investments in Water, Sewer, and Broadband Infrastructure

Summary of Interim Final Rule
    Under the ARPA, recipients may use funds to make necessary 
investments in water, sewer, and broadband infrastructure. The interim 
final rule provided recipients with the ability to use funds for a 
broad array of uses within these categories.
    The interim final rule discussed two general provisions that apply 
across all water, sewer, and broadband infrastructure investments. 
First, the interim final rule addressed the meaning of ``necessary'' 
investments as meaning those designed to provide an adequate minimum 
level of service and unlikely to be made using private sources of 
funds. Second, the interim final rule encouraged recipients to use 
strong labor standards in water, sewer, and broadband projects, as 
discussed below.
Necessary Investments
    The statute limits investments to those that are necessary. As 
discussed in more detail below, Treasury determined that the types of 
water and sewer projects that were authorized under the interim final 
rule by reference to existing Environmental Protection Agency (EPA) 
programs would in all cases be necessary investments given the 
conditions applicable to such EPA programs. Similarly, the interim 
final rule's definition of eligible broadband projects as those 
designed to provide a certain standard of service to those households 
and businesses with limited existing service was based on the statutory 
requirement that investments in water, sewer, and broadband must be 
``necessary.''
    As discussed further below, Treasury has expanded the scope of what 
is an eligible water and sewer infrastructure project to include 
additional uses. In particular, the final rule permits use of SLFRF 
funds for certain dam and reservoir restoration projects and certain 
drinking water projects to support population growth. The nature of 
these additional uses is such that additional factors must be 
considered in determining whether one of these additional uses is a 
necessary project. In addition, Treasury recognizes that there may be a 
need for improvements to broadband beyond those households and 
businesses with limited existing service as defined in the interim 
final rule. Treasury has replaced this specific requirement based on an 
understanding that broadband investments may be necessary for a broader 
set of reasons.
    Given this expansion of what is considered in scope as a water, 
sewer, or broadband infrastructure project, the final rule provides a 
further elaboration of Treasury's understanding of the conditions under 
which an infrastructure project will be considered to be a necessary 
investment. Treasury considers a necessary investment in infrastructure 
to be one that is (1) responsive to an identified need to achieve or 
maintain an adequate minimum level of service, which may include a 
reasonable projection of increased need, whether due to population 
growth or otherwise and (2) a cost-effective means for meeting that 
need, taking into account available alternatives. In addition, given 
that drinking water is a resource that is subject to depletion, in the 
case of investments in infrastructure that supply drinking water in 
order to meet projected population growth, the project must be 
projected to be sustainable over its estimated useful life.
    Not included in the list of criteria above is the requirement in 
the interim final rule that the project be unlikely to be made using 
private sources of funds. Given that it may be difficult to assess in a 
particular case what the probability of private investment in a project 
would be, Treasury has eliminated this standard from the meaning of 
necessary but still encourages recipients to prioritize projects that 
would provide the greatest public benefit in their respective 
jurisdictions.
Strong Labor Standards in Water, Sewer, and Broadband Construction
    As stated in the Supplementary Information to the interim final 
rule, Treasury encourages recipients to carry out investments in water, 
sewer, or broadband infrastructure in ways that produce high-quality 
infrastructure, avert disruptive and costly delays, and

[[Page 4409]]

promote efficiency.\301\ Treasury encourages recipients to use strong 
labor standards, including project labor agreements (PLAs) and 
community benefits agreements that offer wages at or above the 
prevailing rate and include local hire provisions. Treasury also 
recommends that recipients prioritize in their procurement decisions 
employers who can demonstrate that their workforce meets high safety 
and training standards (e.g., professional certification, licensure, 
and/or robust in-house training), that hire local workers and/or 
workers from historically underserved communities, and who directly 
employ their workforce or have policies and practices in place to 
ensure contractors and subcontractors meet high labor standards. 
Treasury further encourages recipients to prioritize employers 
(including contractors and subcontractors) without recent violations of 
federal and state labor and employment laws.
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    \301\ Treasury received several comments related to its 
encouragement of certain wage and labor standards in the 
Supplementary Information to the interim final rule. Some commenters 
opposed this encouragement, arguing that even encouragement and 
reference to PLAs and prevailing wage laws could lead to confusion 
or make it more likely that recipients would apply labor standards 
in ways that would discourage competition and raise project costs. 
Conversely, some commenters supported the encouragement of the use 
of certain standards, including giving preference to employers that 
meet certain employment standards (e.g., those that maintain high 
safety and training standards) because it would support the goal of 
completing water, sewer, and broadband projects efficiently and 
safely. As in the interim final rule, this encouragement does not 
impose a legally binding restriction on recipients.
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    Treasury believes that such practices will promote effective and 
efficient delivery of high-quality infrastructure projects and support 
the economic recovery through strong employment opportunities for 
workers. Such practices will also reduce the likelihood of potential 
project challenges like work stoppages or safety accidents, while 
ensuring a reliable supply of skilled labor and minimizing disruptions, 
such as those associated with labor disputes or workplace injuries. 
That will, in turn, promote on-time and on-budget delivery.
    Furthermore, among other requirements contained in 2 CFR 200, 
Appendix II, all contracts made by a recipient or subrecipient in 
excess of $100,000 with respect to water, sewer, or broadband 
infrastructure project that involve employment of mechanics or laborers 
must include a provision for compliance with certain provisions of the 
Contract Work Hours and Safety Standards Act, 40 U.S.C. 3702 and 3704, 
as supplemented by Department of Labor regulations (29 CFR part 5).
    Treasury will continue to seek information from recipients on their 
workforce plans and water, sewer, and broadband projects undertaken 
with SLFRF funds. This reporting will support transparency and 
competition by enhancing available information on the services being 
provided. Since publication of the interim final rule, Treasury has 
provided recipients with additional guidance and instructions on the 
reporting requirements.\302\
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    \302\ See U.S. Department of the Treasury, Compliance and 
Reporting Guidance, 21 (June 24, 2021), https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.
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Environmental and Other Generally Applicable Requirements
    Treasury cautions that, as is the case with all projects engaged in 
using the SLFRF funds, all projects must comply with applicable 
federal, state, and local law. In the case of infrastructure projects 
in particular, this includes environmental and permitting laws and 
regulations. Likewise, as with all capital expenditure projects using 
SLFRF funds, projects must be undertaken and completed in a manner that 
is technically sound, meaning that they must meet design and 
construction methods and use materials that are approved, codified, 
recognized, fall under standard or acceptable levels of practice, or 
otherwise are determined to be generally acceptable by the design and 
construction industry.
1. Water and Sewer Infrastructure
    Sections 602(c)(1)(D) and Section 603(c)(1)(D) of the Social 
Security Act provide that recipients may use the SLFRF funds ``to make 
necessary investments in water [and] sewer . . . infrastructure.'' The 
interim final rule permitted a broad range of necessary investments in 
projects that improve access to clean drinking water and improve 
wastewater and stormwater infrastructure systems. As discussed below, 
after review of comments received on the interim final rule, Treasury 
has made changes in the final rule to expand the scope of eligible 
water and sewer projects.
Summary of Interim Final Rule and Final Rule Structure
    Background: In the interim final rule, Treasury aligned eligible 
uses of the SLFRF with the wide range of types or categories of 
projects that would be eligible to receive financial assistance through 
the Clean Water State Revolving Fund (CWSRF) or Drinking Water State 
Revolving Fund (DWSRF) administered by the Environmental Protection 
Agency (EPA). By referring to these existing programs, with which many 
recipients are already familiar, Treasury intended to provide 
flexibility to recipients to respond to the needs of their communities 
while facilitating recipients' identification of eligible projects. 
Furthermore, by aligning SLFRF eligible uses with these existing 
programs, Treasury could ensure that projects using the SLFRF are 
limited to ``necessary investments.''
    Public Comment: Treasury received many comments responding to the 
water and sewer infrastructure provisions of the interim final rule 
from state, local, and Tribal governments, industry trade associations, 
public interest groups, private individuals, and other interested 
parties. Commenters requested that Treasury provide a wider set of 
eligible uses for water and sewer infrastructure beyond those uses 
articulated by the DWSRF and CWSRF, suggesting that Treasury expand the 
definition of necessary water and sewer infrastructure.
    Treasury Response: In response to commenters, Treasury is expanding 
the eligible use categories for water and sewer infrastructure, 
discussed in further detail below. Because the interim final rule 
aligned the definition of necessary water and sewer infrastructure with 
the eligible uses included in the DWSRF and CWSRF, Treasury is 
reflecting in the final rule a revised standard for determining a 
necessary water and sewer infrastructure investment for eligible water 
and sewer uses beyond those uses that are eligible under the DWSRF and 
CWSRF.
Interpretation of Necessary Investments and Water and Sewer 
Infrastructure
    Necessary Investments: As discussed above, Treasury considers an 
investment in infrastructure to be necessary if it is (1) responsive to 
an identified need to achieve or maintain an adequate minimum level of 
service, which for some eligible project categories may include a 
reasonable projection of increased need, whether due to population 
growth or otherwise and (2) a cost-effective means for meeting that 
need, taking into account available alternatives. In addition, in the 
case of investments in drinking water service infrastructure to supply 
drinking water to satisfy a projected increase in population, the 
project must also be projected to be sustainable over its estimated 
useful life. As detailed further below, DWSRF and CWSRF eligible 
projects continue to be presumed to be necessary investments under the 
final

[[Page 4410]]

rule, with the exception of projects for the rehabilitation of dams and 
reservoirs, which the EPA has permitted in certain circumstances under 
the DWSRF and, as discussed below, are addressed separately in the 
final rule.
    In evaluating whether a project would respond to a need to achieve 
or maintain an adequate minimum level of service, a recipient should 
consider whether it would meet the needs of the population to be served 
and would satisfy applicable standards. For example, a drinking water 
project must be sized such that it provides an adequate volume of water 
to households and other customers and must meet applicable standards 
for drinking water quality under the Safe Drinking Water Act (SDWA). 
Similarly, a centralized wastewater treatment project should be 
designed to manage updated estimated flow rates and comply with Clean 
Water Act requirements. These requirements are already reflected in the 
eligibility criteria of the DWSRF and CWSRF, respectively.
    In evaluating whether a project is a cost-effective means of 
providing the water or sewer service, the recipient should consider the 
need for the project, the costs and benefits of the project compared to 
alternatives, and the effectiveness of the project in meeting the 
identified need. Recipients are not required to conduct a full cost-
benefit analysis; however, they should consider and analyze relevant 
factors. For example, a recipient may not use funds to pursue a costly 
dam rehabilitation to provide drinking water to a community if it could 
provide the same service with a significantly smaller investment by 
drawing water from another available reservoir, assuming that doing so 
would meet the other requirements of the final rule. As detailed 
further below, recipients are only required to assess cost-
effectiveness of projects for the creation of new drinking water 
systems, dam and reservoir rehabilitation projects, or projects for the 
extension of drinking water service to meet population growth needs.
    Certain DWSRF eligibilities are already subject to a cost-
effectiveness test. Specifically, projects that create new drinking 
water systems must be a cost-effective solution to addressing the 
identified problem.\303\ The EPA also imposes a cost-effectiveness 
condition on dam and reservoir rehabilitation projects undertaken 
pursuant to its class deviation from the DWSRF rule. These projects are 
particularly expensive and, unlike in the case of other types of 
eligible projects, there are often available alternatives to conducting 
these projects. Projects for the extension of drinking water service to 
meet population growth needs are also often particularly expensive, and 
there are often different ways to meet the needs of expanding 
populations. Treasury will accordingly require that recipients engage 
in a cost-effectiveness analysis when engaging in projects for the 
creation of new drinking water systems, dam and reservoir 
rehabilitation projects, or projects for the extension of drinking 
water service to meet population growth needs. Other types of eligible 
water or sewer projects will not be subject to this cost-effectiveness 
test, including lead line replacement and lead remediation.\304\
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    \303\ See 40 CFR 35.3520(b)(2)(vi).
    \304\ In such cases, either the projects are presumptively cost-
effective (e.g., lead projects would always be considered cost-
effective given the costs imposed by lead poisoning) or a cost-
effectiveness test is less relevant given the lack of available 
alternatives or the relatively low cost of the project.
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    In the case of projects that expand drinking water service 
infrastructure to satisfy a projected increase in population, the 
project must also be sustainable, meaning that the project can continue 
providing the adequate minimum level of service for its estimated 
useful life, taking into account projected impacts of changes to the 
climate and other expected demands on the source of water. For example, 
a reservoir rehabilitation project may not be pursued if the reservoir 
will no longer be able to provide an adequate source of drinking water 
before the end of the estimated useful life of the improvements to the 
reservoir. In areas currently impacted by drought or where drought 
conditions are expected to be more frequent or more severe in the 
future, sources of drinking water may be diminished more quickly than 
in prior periods. In considering how much of a source of water will be 
available in the future for the drinking water project, a recipient 
must consider that a source of water may be drawn upon or otherwise 
used for other current and expected uses, including use by fish and 
other wildlife.
    The final rule applies this sustainability condition to projects 
that expand drinking water service infrastructure to satisfy a 
projected increase in population but not to other drinking water 
projects. When a new source of water is required to remedy an existing 
threat to public health, as in the case of source projects eligible 
under the DWSRF, sustainability should be a consideration, but in some 
cases, the need to replace a contaminated source may mean that a less 
sustainable choice may be made. When faced with such an issue, such as 
in the case of a contaminated well system, a project to replace the 
contaminated source can be said to be ``necessary'' even if the 
replaced source is not sustainable over the long term. Expediency may 
dictate that a shorter-term solution is pursued if it is cost-effective 
and will prevent health issues while a longer-term solution can be 
found. In contrast, an expansion to accommodate population growth 
cannot be said to be necessary if it is not sustainable over its 
estimated useful life.
    Not included in the list of criteria above is the requirement in 
the interim final rule that the project be unlikely to be made using 
private sources of funds. Given that it may be difficult to assess in a 
particular case what the probability of private investment in a project 
would be, Treasury has eliminated this standard from the meaning of 
necessary but nevertheless encourages recipients to apply funds to 
projects that would provide the greatest public benefit.
    Water and Sewer Infrastructure: As stated above, Congress provided 
that SLFRF funds are available for ``necessary water, sewer, and 
broadband infrastructure.'' Treasury interprets the reference to water 
and sewer uses consistent with the inclusion of broadband uses. Water, 
sewer, and broadband infrastructure all involve the provision of 
essential services to residents, businesses, and other consumers. As 
the pandemic has made clear, access to broadband has itself become 
essential for individuals and businesses to participate in education, 
commerce, work, and civic matters and to receive health care and social 
services.
    Water and sewer services provided broadly to the public as 
essential services include the provision of drinking water and the 
removal, management, and treatment of wastewater and stormwater.\305\ 
Although governments are engaged in other infrastructure related to 
water, including irrigation projects, transportation projects, and 
recreation projects, such projects go beyond the scope of what is 
provided to all residents as an essential service. Provision of 
drinking water and removal, management, and treatment of

[[Page 4411]]

wastewater and stormwater are the typical responsibilities of ``water 
and sewer'' authorities throughout the country, and there is a 
tremendous need for improvements to the ability of state, local, and 
Tribal governments to provide such services, including to address the 
consequences of deferred maintenance and additional resiliency needed 
to adapt to changes to the climate.\306\
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    \305\ In many jurisdictions, stormwater flows into the sewer 
system rather than into a separate stormwater system. The separate 
inclusion of ``water'' and ``sewer'' infrastructure also makes clear 
that ``water'' in this context cannot refer to all uses relevant to 
water. Given that sewer systems carry wastewater (and often 
stormwater), if water infrastructure were to refer to all water-
related infrastructure in this context, it would make the inclusion 
of sewer infrastructure redundant.
    \306\ In addition, Treasury interprets the eligible uses of 
SLFRF funds against the background of the Coronavirus Relief Fund 
(CRF), for which the SLFRF funds are, in part, a successor. CRF 
recipients expressed great interest in using the CRF to pursue water 
infrastructure projects, including provision of drinking water and 
internal plumbing on Tribal lands and in Alaskan villages, and 
broadband projects throughout the country; Treasury permitted these 
projects given the connection to the public health emergency (see 
Coronavirus Relief Fund for States, Tribal Governments, and Certain 
Eligible Local Governments, 86 FR 4182, 4190, 4192 (Jan. 15, 2021), 
but the short deadline for use of funds made it difficult to use CRF 
funds in this way. Congress' inclusion of the water, sewer, and 
broadband clause in the ARPA, along with the SLFRF funds' longer 
eligible use date, is responsive to this unmet need. As discussed 
below, Congress in the Infrastructure Investment and Jobs Act 
amended sections 602(c) and 603(c) of the Social Security Act to add 
a new paragraph as sections 602(c)(4) and 603(c)(5), respectively, 
providing that SLFRF funds may be used to meet non-federal matching 
requirements of any authorized Bureau of Reclamation project. This 
authority was added as a separately enumerated eligible use 
regardless of whether the underlying project would be an eligible 
use of SLFRF funds under the water and sewer infrastructure eligible 
use category.
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    Although the meaning of water and sewer infrastructure for purposes 
of sections 602(c)(1)(D) and 603(c)(1)(D) of the Social Security Act 
does not include all water-related uses, Treasury has made clear in 
this final rule that investments to infrastructure include a wide 
variety of projects. Treasury interprets the word ``infrastructure'' in 
this context broadly to mean the underlying framework or system for 
achieving the given public purpose, whether it be provision of drinking 
water or management of wastewater or stormwater.\307\ As discussed 
below, this can include not just storm drains and culverts for the 
management of stormwater, for example, but also bioretention basins and 
rain barrels implemented across a watershed, including on both public 
and private property, that together reduce the amount of runoff that 
needs to be managed by traditional infrastructure.
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    \307\ See, e.g., section 502 of the Federal Water Pollution 
Control Act (33 U.S.C. 1362), defining ``green infrastructure'' as 
``the range of measures that use plant or soil systems, permeable 
pavement or other permeable surfaces or substrates, stormwater 
harvest and reuse, or landscaping to store, infiltrate, or 
evapotranspirate stormwater and reduce flows to sewer systems or to 
surface waters.''
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    Further, Treasury understands that investments in infrastructure 
include improvements that increase the capacity of existing 
infrastructure and extend the useful life of existing infrastructure. 
Accordingly, water and sewer infrastructure investment projects include 
those that conserve water, thereby reducing pressure on infrastructure 
for the provision of drinking water, and that recycle wastewater and 
stormwater, thereby reducing pressure on the infrastructure for 
treating and managing wastewater and stormwater.
    As with other infrastructure projects and capital expenditure 
projects that are permitted as responses to the public health emergency 
and its negative economic impacts, costs for planning and design and 
associated pre-project costs are eligible uses of SLFRF funds. Costs 
for the acquisition of land are also eligible, but only if needed for 
the purposes of locating eligible project components. Recipients should 
ensure that they have the technical, financial, and managerial 
capability to ensure compliance with the requirements of the SDWA, or 
that the assistance will ensure compliance and the owners or operators 
of the systems will undertake feasible and appropriate changes in 
operations to ensure compliance over the long-term.
Drinking Water State Revolving Fund and Clean Water State Revolving 
Fund
    Background: As stated above, in the interim final rule, Treasury 
included eligible uses of the DWSRF and the CWSRF as eligible uses of 
the SLFRF in the water and sewer infrastructure category. By providing 
that projects eligible under the DWSRF and the CWSRF are also eligible 
uses of SLFRF funds, the interim final rule permitted a broad range of 
projects that improve drinking water infrastructure, such as building 
or upgrading facilities and transmission, distribution, and storage 
systems, including replacement of lead service lines. With respect to 
clean water and wastewater infrastructure, the interim final rule 
provided that recipients may use SLFRF funds to construct publicly 
owned treatment infrastructure, manage and treat stormwater or 
subsurface drainage water, and facilitate water reuse, among other 
uses. Consistent with the DWSRF and the CWSRF, the interim final rule 
provided that SLFRF funds may be used for cybersecurity needs to 
protect water or sewer infrastructure, such as developing effective 
cybersecurity practices and measures at drinking water systems and 
publicly owned treatment works.
    Use of DWSRF and CWSRF to Support Climate Change Adaptations. Many 
of the types of projects eligible under either the DWSRF or CWSRF also 
support efforts to address climate change. For example, by taking steps 
to manage potential sources of pollution and preventing these sources 
from reaching sources of drinking water, projects eligible under the 
DWSRF and CWSRF may reduce energy required to treat drinking water. 
Similarly, projects eligible under the DWSRF and CWSRF include measures 
to conserve and reuse water, for example through projects to reuse or 
recycle wastewater, stormwater, or subsurface drainage water. Treasury 
encourages recipients to consider green infrastructure investments and 
projects to improve resilience to the effects of climate change. For 
example, more frequent and extreme precipitation events combined with 
construction and development trends have led to increased instances of 
stormwater runoff, water pollution, and flooding. Green infrastructure 
projects that support stormwater system resiliency could include 
bioretention basins that provide water storage and filtration benefits, 
and green streets, where vegetation, soil, and engineered systems are 
combined to direct and filter rainwater from impervious surfaces. In 
cases of a natural disaster, recipients may also use SLFRF funds for 
water infrastructure to provide relief, such as interconnecting water 
systems or rehabilitating existing wells during an extended drought.
    Public Comment: Many commenters expressed support for the interim 
final rule's alignment of the use of funds for water and sewer 
infrastructure under the SLFRF with the project categories provided 
through the EPA's DWSRF and CWSRF programs.
    Many commenters also provided recommendations about the specific 
types of water infrastructure projects that should be eligible under 
the final rule. In many of these cases, commenters recommended that 
Treasury include project types that are already eligible under the 
DWSRF and CWSRF and thus eligible under the interim final rule and 
final rule. For example, several commenters requested that aquifer 
recharge projects, or other groundwater protection and restoration 
projects, be included as eligible uses of SLFRF when certain aquifer 
recharge projects that (1) implement a nonpoint source pollution 
management program \308\ or (2) constitute reuse of

[[Page 4412]]

wastewater, stormwater, or subsurface drainage water are in fact 
eligible uses under the CWSRF. Furthermore, under the DWSRF, eligible 
projects include certain aquifer storage and recovery systems for water 
storage.
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    \308\ Specifically, this would include desalination projects 
that decrease the burden on aquifers where there is causal 
relationship between aquifer withdrawals and saltwater intrusion if 
the projects implement a nonpoint source pollution management 
program under section 319 of the Clean Water Act. This could include 
projects in which desalinated seawater is injected into the aquifer 
to mitigate or prevent salt water intrusion, as well as projects in 
which brackish water is removed from an aquifer, desalinated, and 
returned to the aquifer.
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    Treasury Response: Eligible projects articulated in the DWSRF and 
CWSRF continue to be eligible uses of SLFRF funds under the final rule. 
Recognizing that recipients have faced challenges interpreting eligible 
use categories under the interim final rule or cross-referencing EPA 
program materials to interpret eligible project types, Treasury is 
including in this Supplementary Information additional information on 
the types of projects eligible under the DWSRF and CWSRF. Treasury 
emphasizes that this further clarification does not represent a change 
in eligibility. Treasury encourages recipients to reference EPA 
handbooks for the DWSRF and CWSRF, which provide further information 
and detail about the types of projects eligible under those programs 
and thus under the final rule.
    Eligible projects under the DWSRF. Eligibilities under the DWSRF, 
the interim final rule, and the final rule include projects that 
address present or prevent future violations of health-based drinking 
water standards. These include projects needed to maintain compliance 
with existing national primary drinking water regulations for 
contaminants with acute and chronic health effects. Projects to replace 
aging infrastructure are also eligible uses if they are needed to 
maintain compliance or further the public health protection objectives 
of section 1452 of the SDWA.\309\ The following project categories are 
eligible under the DWSRF, were eligible under the interim final rule, 
and continue to be eligible under the final rule:
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    \309\ See 42 U.S.C. 300j-12(a)(2)(B) (limiting financial 
assistance used by a public water system to expenditures (including 
expenditures for planning, design, siting, and associated 
preconstruction activities, or for replacing or rehabilitating aging 
treatment, storage, or distribution facilities of public water 
systems, but not including monitoring, operation, and maintenance 
expenditures of a type or category which the Administrator of the 
EPA has determined, through guidance, will facilitate compliance 
with national primary drinking water regulations applicable to the 
system under 42 U.S.C. 300g-1 or otherwise significantly further the 
health protection objectives of the SWDA); See also 40 CFR 
35.3520(b).
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    (i) Treatment projects, including installation or upgrade of 
facilities to improve the quality of drinking water to comply with 
primary or secondary standards and point of entry or central treatment 
under section 1401(4)(B)(i)(III) of the SDWA.
    (ii) Transmission and distribution projects, including installation 
or replacement of transmission and distribution pipes to improve water 
pressure to safe levels or to prevent contamination caused by leaks or 
breaks in the pipes.
    (iii) Source projects, including rehabilitation of wells or 
development of eligible sources to replace contaminated sources.
    (iv) Storage projects, including installation or upgrade of 
eligible storage facilities, including finished water reservoirs, to 
prevent microbiological contaminants from entering a public water 
system.
    (v) Consolidation projects, including projects needed to 
consolidate water supplies where, for example, a supply has become 
contaminated or a system is unable to maintain compliance for 
technical, financial, or managerial reasons.
    (vi) Creation of new systems, including those that, upon 
completion, will create a community water system to address existing 
public health problems with serious risks caused by unsafe drinking 
water provided by individual wells or surface water sources. Eligible 
projects are also those that create a new regional community water 
system by consolidating existing systems that have technical, 
financial, or managerial difficulties. Projects to address existing 
public health problems associated with individual wells or surface 
water sources must be limited in scope to the specific geographic area 
affected by contamination. Projects that create new regional community 
water systems by consolidating existing systems must be limited in 
scope to the service area of the systems being consolidated.
    Ineligible projects under the DWSRF. Federally-owned public water 
systems and for-profit noncommunity water systems are not eligible to 
receive DWSRF funds and therefore SLFRF funds.\310\ The acquisition of 
water rights, laboratory fees for routine compliance monitoring, and 
operation and maintenance expenses are not costs associated with 
investments in infrastructure and thus would not be eligible under the 
final rule. \311\ Projects needed primarily to serve future population 
growth are also ineligible under the DWSRF; the treatment of such 
projects under the final rule is discussed separately below under 
``Expansion of Drinking Water Service.'' Projects eligible under the 
DWSRF must be sized only to accommodate a reasonable amount of 
population growth expected to occur over the useful life of the 
project.
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    \310\ See 40 CFR 35.3520(d)(1).
    \311\ See id at Sec.  35.3520(e)(2)-(4).
---------------------------------------------------------------------------

    Eligible projects under the CWSRF. The final rule continues to 
allow the use of SLFRF funds for projects eligible under the CWSRF, 
consistent with the interim final rule. Under the CWSRF, a project must 
meet the criteria of one of the following CWSRF eligibilities to be 
eligible for assistance. Section 603(c) of the Clean Water Act (CWA) 
\312\ provides that the CWSRF can provide assistance:
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    \312\ 33 U.S.C. 1383(c).

    (i) to any municipality, intermunicipal, interstate, or state 
agency for construction of publicly owned treatment works (as 
defined in section 212 of the CWA); \313\
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    \313\ 33 U.S.C. 1292.
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    (ii) for the implementation of a management program established 
under section 319 of the CWA; \314\
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    \314\ 33 U.S.C. 1329.
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    (iii) for the development and implementation of a conservation 
and management plan under section 320 of the CWA; \315\
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    \315\ 33 U.S.C. 1330.
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    (iv) for the construction, repair, or replacement of 
decentralized wastewater treatment systems that treat municipal 
wastewater or domestic sewage. Eligible projects include, but are 
not limited to, the construction of new decentralized systems (e.g., 
individual onsite systems and cluster systems), as well as the 
upgrade, repair, or replacement of existing systems.

    (v) for measures to manage, reduce, treat, or recapture stormwater 
or subsurface drainage water. Publicly and privately owned, permitted 
and unpermitted projects that manage, reduce, treat, or recapture 
stormwater or subsurface drainage water are eligible. For example, 
projects that are specifically required by a Municipal Separate Storm 
Sewer System (MS4) permit are eligible, regardless of ownership. 
Projects may include, but are not limited to green roofs, bioretention 
basins, roadside plantings, porous pavement, and rainwater harvesting.
    (vi) to any municipality, intermunicipal, interstate, or state 
agency for measures to reduce the demand for publicly owned treatment 
works capacity through water conservation, efficiency, or reuse. 
Eligible projects include, but are not limited to, the installation, 
replacement, or upgrade of water meters; plumbing fixture retrofits or 
replacement; and gray water recycling. Water audits and water 
conservation plans are also eligible.

[[Page 4413]]

Equipment to reuse effluent (e.g., gray water, condensate, and 
wastewater effluent reuse systems) is eligible.
    (vii) for the development and implementation of watershed projects 
meeting the criteria set forth in section 122 of the CWA.\316\ Projects 
that develop or implement a watershed pilot project related to at least 
one of the six areas identified in section 122 of the CWA are eligible: 
Watershed management of wet weather discharges, stormwater best 
management practices, watershed partnerships, integrated water resource 
planning, municipality-wide stormwater management planning, or 
increased resilience of treatment works.
---------------------------------------------------------------------------

    \316\ 33 U.S.C. 1274.
---------------------------------------------------------------------------

    (viii) to any municipality, intermunicipal, interstate, or state 
agency for measures to reduce the energy consumption needs for publicly 
owned treatment works. Projects may include, but are not limited to, 
the installation of energy efficient lighting, HVAC, process equipment, 
and electronic equipment and systems at publicly owned treatment works. 
Planning activities, such as energy audits and optimization studies are 
also eligible.
    (ix) for reusing or recycling wastewater, stormwater, or subsurface 
drainage water. Projects involving the reuse or recycling of 
wastewater, stormwater, or subsurface drainage water are eligible. This 
includes, as part of a reuse project, the purchase and installation of 
treatment equipment sufficient to meet reuse standards. Other eligible 
projects include, but are not limited to, distribution systems to 
support effluent reuse, including piping the effluent on the property 
of a private consumer, recharge transmission lines, injection wells, 
and equipment to reuse effluent (e.g., gray water, condensate, and 
wastewater effluent reuse systems).
    (x) for measures to increase the security of publicly owned 
treatment works. Security measures for publicly owned treatment works 
might include, but are not limited to, vulnerability assessments, 
contingency/emergency response plans, fencing, security cameras/
lighting, motion detectors, redundancy (systems and power), secure 
chemical and fuel storage, laboratory equipment, securing large 
sanitary sewers, and tamper-proof manholes. The CWSRF cannot fund 
operations and maintenance activities. Therefore, maintaining a human 
presence (i.e., security guards) and monitoring activities are not 
eligible.
Other Clarifications of DSWRF and CWSRF Eligible Project Categories
    Public Comment: Several commenters requested that Treasury provide 
clarification of the requirements associated with use of SLFRF funds 
for necessary investments in water and sewer infrastructure.
    Treasury Response: After release of the interim final rule, 
Treasury clarified in further guidance that, while recipients must 
ensure that water and sewer infrastructure projects pursued are 
eligible under the final rule, recipients are not required to obtain 
project pre-approval from Treasury or any other federal agency when 
using SLFRF funds for necessary water and sewer infrastructure projects 
unless otherwise required by federal law. For projects that are being 
pursued under the eligibility categories provided through the DWSRF or 
CWSRF programs, project eligibilities are based on federal project 
categories and definitions for the programs and not on each state's 
eligibility or definitions. While reference in the final rule to the 
DWSRF, CWSRF, or other federal water programs is provided to assist 
recipients in understanding the types of water and sewer infrastructure 
projects eligible to be funded with SLFRF, recipients do not need to 
apply for funding from the applicable state programs or through any 
federal water program. Similarly, besides eligible project categories, 
the final rule does not incorporate other program requirements or 
guidance that attach to the DWSRF, CWSRF, or other federal water 
programs. However, as noted above, recipients should be aware of other 
federal or state laws or regulations that may apply to construction 
projects or water and sewer projects, independent of SLFRF funding 
conditions, and that may require pre-approval from another federal or 
state agency.
Expanded Eligible Uses for Water and Sewer Infrastructure
Summary
    Public Comment: Many commenters requested broader flexibility in 
the use of SLFRF funds for water and sewer infrastructure projects that 
are not eligible under the DWSRF and CWSRF. These commenters argued 
that localities are best situated to identify the highest-need water 
and sewer projects in their communities. Several Tribal government 
commenters noted that Tribes have different water and sewer 
infrastructure needs than states and localities and that additional 
flexibility in the use of funds would lift current barriers to 
improving infrastructure on Tribal lands.
    To achieve additional flexibility, commenters suggested a range of 
options for broadening the eligible use of SLFRF funds for necessary 
water and sewer infrastructure. For example, several commenters 
suggested Treasury broaden the eligibilities provided under the interim 
final rule to include project types eligible under other federal water 
and sewer programs.
    Treasury Response: Treasury agrees that additional flexibility for 
use of SLFRF funds is warranted and is providing expanded eligibilities 
as described below, several of which address specific areas of need 
outlined by Tribal and rural communities.
    As discussed below, Treasury has incorporated into the final rule 
projects that are eligible under certain programs established by the 
EPA under the Water Infrastructure Improvements for the Nation Act 
(WIIN Act). Other water-related grant programs cited by commenters 
include projects that are otherwise already covered by the final rule, 
for example because they are covered as eligible under the DWSRF or the 
CWSRF, or projects that are ineligible under the final rule because 
they are beyond the scope of the meaning of water and sewer projects 
for purposes of ARPA. To minimize the need for recipients of SLFRF 
funds to cross reference eligibilities across multiple federal 
programs, which may exacerbate current challenges to understanding 
eligibility under SLFRF, Treasury is providing detailed information 
related to expanded eligibilities within the text of this Supplementary 
Information for the final rule.
Stormwater Infrastructure
    Public Comment: Several commenters requested that additional 
stormwater infrastructure projects be included as eligible uses of 
SLFRF funds under the final rule. Commenters suggested that culvert 
repair and resizing and replacement of storm sewers is necessary to 
address increased rainfall brought about by a changing climate. Other 
commenters noted that rural communities that do not manage their own 
sewer systems may rely on this type of water infrastructure.
    Treasury Response: The CWSRF includes a broad range of stormwater 
infrastructure projects, and as such these projects were eligible under 
the interim final rule and continue to be eligible under the final 
rule. These projects include gray infrastructure projects, such as 
traditional pipe, storage, and treatment systems. Projects

[[Page 4414]]

that manage, reduce, treat, or recapture stormwater or subsurface 
drainage water are also eligible, including real-time control systems 
for combined sewer overflow management, and sediment control. Culvert 
infrastructure projects are eligible under the CWSRF if they (1) 
implement a nonpoint source management plan, (2) implement National 
Estuary Program Comprehensive Conservation and Management Plan, or (3) 
implement a stormwater management plan with the goal of providing a 
water quality benefit. Stormwater projects under the CWSRF also 
encompass a number of eligible green infrastructure categories, such as 
green roofs, green streets, and green walls, rainwater harvesting 
collection, storage, management, and distribution systems, real-time 
control systems for harvested rainwater, infiltration basins, 
constructed wetlands, including surface flow and subsurface flow (e.g., 
gravel) wetlands, bioretention/bioswales (e.g., bioretention basins, 
tree boxes), permeable pavement, wetland, riparian, or shoreline 
creation, protection, and restoration, establishment or restoration of 
urban tree canopy, and replacement of gray infrastructure with green 
infrastructure including purchase and demolition costs.
    In addition to the eligible uses under the CWSRF, Treasury is 
expanding the eligible uses under the final rule to include stormwater 
system infrastructure projects regardless of whether there is an 
expected water quality benefit from the project. Treasury anticipates 
that this eligible use will allow recipients to manage increased 
volumes of stormwater as a result of changes to the climate. For 
example, the final rule now permits the use of SLFRF funds for the 
repair, replacement, or removal of culverts or other road-stream 
crossing infrastructure to the extent the purpose of the project is to 
manage stormwater. In addition, Treasury understands that the repair, 
replacement, or removal of culverts may necessitate the repair or 
upgrade of roads. As noted in guidance issued after the interim final 
rule, recipients may use SLFRF funds for road repairs and upgrades that 
interact directly with an eligible stormwater infrastructure project. 
All stormwater infrastructure projects undertaken should incorporate 
updated design features and current best practices.
Private Wells and Septic Systems
    Public Comment: Several commenters requested that the scope of 
eligible projects be expanded to allow for the expenditure of SLFRF 
funds on private wells or septic systems. Commenters noted that wells 
may be contaminated with dangerous substances, including arsenic, lead, 
radon, and PFAS (per- and polyfluoroalkyl). Commenters also suggested 
that, because rural and underserved communities are often reliant on 
these infrastructure types for their drinking water or wastewater 
needs, lack of appropriate funding to maintain these systems could 
present health and safety issues that disproportionately affect certain 
communities.
    Treasury Response: Consistent with the CWSRF, the installation, 
repair, or replacement of private septic units continues to be an 
eligible use of SLFRF funds under the final rule. For example, eligible 
projects include those that address groundwater contamination resulting 
from faulty septic units and those that would connect failing septic 
systems to centralized wastewater treatment. Consistent with the DWSRF, 
connecting homes served by a private well to a public water system is 
an eligible use of SLFRF funds.
    In addition, Treasury has provided in the final rule that 
recipients may use SLFRF funds for an expanded set of infrastructure 
projects that improve access to and provision of safe drinking water 
for individuals served by residential wells. Eligible projects under 
this category include rehabilitation of private wells, testing 
initiatives to identify contaminants in wells, and treatment activities 
and remediation strategies that address contamination.
Remediating Lead in Water
    Public Comment: Several commenters emphasized the need to fully 
remediate lead contamination, especially in structures that serve the 
public or populations like children that are particularly vulnerable to 
the effects of lead exposure, such as schools and daycares. Many 
American households and an estimated 400,000 schools and childcare 
centers currently lack safe drinking water.\317\
---------------------------------------------------------------------------

    \317\ The White House, Updated Fact Sheet: Bipartisan 
Infrastructure Investment and Jobs Act (August 2, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/02/updated-fact-sheet-bipartisan-infrastructure-investment-and-jobs-act/.
---------------------------------------------------------------------------

    Treasury Response: The replacement of lead service lines, up to 
premise plumbing, is an eligible use under the DWSRF and continues to 
be an eligible use of SLFRF funds. Such projects are eligible 
regardless of the pipe material of the replacement lines and ownership 
of the property on which the service line is located. Lead service line 
replacement projects can serve households, schools, or any other 
entities. Given the lifelong impacts of lead exposure for children and 
the widespread prevalence of lead service lines, Treasury encourages 
recipients to consider projects to replace lead service lines.
    In addition, Treasury is providing in the final rule that for lead 
service line replacement projects, recipients must replace the full 
length of the service line, and not just a partial portion of the 
service line. Some water utilities, when replacing service lines, will 
only replace the ``public portion'' of the service line and physically 
slice through the lead service line at the public/private line. This 
action can result in elevated drinking water lead levels for some 
period of time after replacement, suggesting the potential for harm, 
rather than benefit during that time period.\318\ Requiring replacement 
of the full length of the service line is also consistent with the 
requirements of the EPA's Lead and Copper Rule Revisions for water 
systems that have an action level exceedance for lead \319\ and certain 
other water systems.\320\
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    \318\ See EPA Science Advisory Board, Evaluation of the 
Effectiveness of Partial Lead Service Line Replacements, (September 
2011), https://www.epa.gov/sdwa/science-advisory-board-evaluation-effectiveness-partial-lead-service-line-replacements (advising 
against partial lead service line replacement).
    \319\ Environmental Protection Agency, supra note 188.
    \320\ Environmental Protection Agency, National Primary Drinking 
Water Regulations: Lead and Copper Rule Revisions, 86 FR 4198. 40 
CFR 141.84, and preamble at 4215, January 15, 2021, https://www.federalregister.gov/d/2020-28691; scheduled to become effective 
December 16, 2021, Environmental Protection Agency, 86 FR 31939, 
https://www.federalregister.gov/d/2021-12600.
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    Treasury is expanding eligible uses of SLFRF funds to include 
infrastructure projects eligible under EPA grant programs authorized by 
the WIIN Act.\321\ Eligible projects under these programs include the 
installation or re-optimization of corrosion control treatment, 
replacing lead service lines, replacing galvanized pipes downstream of 
a lead service line (other than lead pipes within a home as discussed 
below), and maintaining an inventory of the drinking water system's 
service lines. Water quality testing, compliance monitoring, and 
remediation activities in schools and other childcare facilities, as 
well as activities necessary to respond to a contaminant, are eligible 
uses of SLFRF funds.\322\ Remediation

[[Page 4415]]

activities such as replacement of faucets, internal plumbing, and 
fixtures in schools and childcare facilities are also an eligible use 
of SLFRF funds.
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    \321\ Eligible uses of funds include those eligible under the 
Small, Underserved, and Disadvantaged Communities Grant (Section 
2104), Reduction in Lead Exposure via Drinking Water Grant Program 
(Section 2105) and Lead Testing in School and Child Care Program 
Drinking Water Grant Program (Section 2107).
    \322\ Such testing and remediation programs would be an eligible 
use of SLFRF funds given that they would help a recipient determine 
whether an infrastructure project, such as a lead line replacement, 
is necessary. In contrast, as mentioned above, the costs of 
continual testing that is part of a drinking water or wastewater 
facilities' operating costs would not be considered part of an 
infrastructure project.
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    Consistent with the EPA programs, replacement of lead pipes within 
a home is not eligible under the final rule because the vast majority 
of lead contamination cases can be solved by replacing lead service 
lines (including on public and private property) and faucets and 
fixtures themselves. As such, replacement of lead pipes within a home 
would not be considered a cost-effective means for achieving the 
desired level of service and thus would not be a ``necessary'' 
investment. The provision of bottled water is also not an eligible use 
of SLFRF funds under this eligible use category, as it is not an 
investment in infrastructure. However, bottled water in areas with an 
action level exceedance for lead in water may be an eligible use of 
SLFRF funds under a separate eligible use category for ``remediation of 
lead paint and other lead hazards;'' see Assistance to Households in 
Public Health and Negative Economic Impacts.
    Water filtration systems are eligible under the EPA grant programs 
and the final rule as long as they are installed as a permanent part of 
a facility's system and not intended for temporary use. Conducting 
remediation, follow-up monitoring, and conducting public education and 
outreach about the availability of infrastructure programs, such as 
water testing and fixture replacement programs funded with SLFRF funds 
or otherwise, are also eligible projects. Finally, recipients should 
note that ``remediation of lead paint and other lead hazards'' is a 
separate eligible use category and a broader range of programs and 
services may be eligible under that section, including investments that 
are not infrastructure; see the eligible use for ``remediation of lead 
paint and other lead hazards'' in section Assistance to Households in 
Public Health and Negative Economic Impacts.
Dams and Reservoirs
    Public Comment: Many commenters requested that Treasury broaden 
eligibilities to include dams and reservoirs, infrastructure that 
commenters noted may in its current state be unsafe and could put 
surrounding communities at risk. Some commenters argued that dams and 
reservoirs play an important role in providing municipal water supply 
and water to irrigate farmland, including in areas impacted by recent 
droughts. Other commenters noted that a large number of dams are 
currently classified as high-hazard structures, the failure of which 
would have severe consequences for public safety and the local 
environment. With respect to reservoirs, commenters articulated that 
changing climate conditions have necessitated upgrades to reservoir 
infrastructure to ensure existing facilities can meet the local water 
needs of a community. Commenters noted that communities facing drought 
may also need to adjust or enhance reservoirs to maintain adequate 
water supply.
    In contrast, several commenters suggested that infrastructure 
projects related to dams and reservoirs should not be considered 
eligible uses of SLFRF funds. These commenters noted that alternate 
sources of funding exist for dam and reservoir projects and that dams 
and reservoir infrastructure could result in negative impacts to Tribal 
communities and negative environmental impacts, including harm to 
wildlife habitats.
    Treasury Response: Treasury understands that many dams and 
reservoirs in need of rehabilitation are dams and reservoirs whose 
primary purpose is to provide drinking water. As discussed above, SLFRF 
funds are available for projects related to the provision of drinking 
water. Moreover, since issuance of the interim final rule, the EPA has 
adopted a class deviation from the DWSRF regulations that permits such 
dam and reservoir rehabilitation projects in certain 
circumstances.\323\ In approving this class deviation, the EPA 
recognized that many dams used for drinking water are aging and 
deteriorating and pose a public health risk to communities; that 
current dam conditions do not meet state safety standards; and that 
reservoir capacity has diminished and requires dredging to meet 
drinking water needs of the existing population.
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    \323\ See EPA, Approval of Class Exception from the Regulatory 
Prohibitions on the Use of Drinking Water State Revolving Fund for 
Rehabilitation of Dams and Reservoirs (July 14, 2021), available at 
https://www.epa.gov/system/files/documents/2021-07/dwsrf-class-deviation-dam-reservoir-rehab-2021_0.pdf.
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    Treasury's final rule provides that funds may be used for 
rehabilitation of dams and reservoirs if the primary purpose of the dam 
or reservoir is for drinking water supply and the rehabilitation 
project is necessary for continued provision of drinking water supply. 
In considering whether a dam or reservoir project is necessary for the 
provision of drinking water supply, a recipient may take into 
consideration future population growth in certain circumstances, as 
discussed under ``Expansion of Drinking Water Service Infrastructure'' 
below, but the project must in any case be designed to support no more 
than a reasonable level of projected increased need. The recipient must 
also determine that the project is cost-effective, i.e., that there are 
not significantly superior alternatives that are available, taking into 
consideration the relative costs and benefits of the project as 
compared to those alternatives.
    This change to the final rule would permit a wide variety of 
projects.\324\ The limitation in the final rule to rehabilitation of 
existing dams and reservoirs reflects the scope of the EPA class 
deviation referenced above and Treasury's understanding of the 
significant need for investments in rehabilitation to address 
deterioration of dams and the diminished capacity of reservoirs. 
Further, Treasury expects that in many cases it would be considerably 
more difficult to demonstrate that construction of a new dam or 
reservoir would be necessary for the purpose of the provision of 
drinking water than is the case for rehabilitation of dams and 
reservoirs already serving that purpose for a particular population, 
particularly given opportunities to meet drinking water needs through 
water reuse and conversation efforts. For these reasons, and given that 
the relatively short period of availability of the funds makes new dam 
and reservoir construction with these funds less likely, Treasury has 
limited the scope of the final rule to dam and reservoir rehabilitation 
projects.
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    \324\ As noted in the EPA's class deviation, examples of dam 
rehabilitation projects include spillway reconstruction or repair; 
dam resurfacing, patching, or other structural repairs, including 
minimal height increases if needed to maintain the structural 
integrity of the dam; grouting for seepage control or liquefaction 
remediation (e.g., epoxy resin, asphalt, or rock); repair or 
replacement of drainage systems; and seismic stability efforts 
(e.g., anchors). Examples of reservoir rehabilitation projects 
include sedimentation dredging and reservoir lining.
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    As discussed above, Treasury has determined that ARPA does not 
authorize the use of SLFRF funds for uses other than the provision of 
drinking water and the management of wastewater and storm water. As 
such, the final rule does not include infrastructure projects related 
to dams and reservoirs as eligible uses of SLFRF funds unless they meet 
the conditions discussed above.

[[Page 4416]]

    Public Comment: Several commenters requested that the removal of 
dams and associated habitat restoration should be eligible uses of 
SLFRF funds, noting that in some cases, dam removal will improve water 
quality while removing long-term operational expenses for the 
recipient.
    Treasury Response: Dam removal projects and associated stream and 
habitat restoration projects are eligible uses of the CWSRF and 
continue to be eligible under the final rule when the removal 
implements either a nonpoint source management program plan or a 
National Estuary Program Comprehensive Conservation and Management Plan 
or when the removal will provide a water quality benefit. Habitat 
restoration projects more generally may also be eligible under the 
CWSRF and the final rule if they constitute a form of stormwater 
infrastructure.
Expansion of Drinking Water Service Infrastructure
    Public Comment: Commenters asked for the ability to use funds for 
drinking water projects for the purpose of meeting needs arising from 
future growth, which, given the restrictions applicable to the DWSRF, 
was not permitted under the interim final rule.
    Treasury Response: As provided for in the SDWA, the DWSRF is meant 
to serve the public health needs of the existing population. The EPA 
regulation implementing the DWSRF program provides that projects needed 
primarily to serve future population growth are not eligible uses of 
the DWSRF. A project that is intended primarily to address public 
health or regulatory compliance issues for the existing service 
population may be sized for a ``reasonable'' amount of population 
growth over the useful life of the project.\325\
---------------------------------------------------------------------------

    \325\ See 40 CFR 35.3520(e)(5).
---------------------------------------------------------------------------

    ARPA does not include the same limitation as the SDWA. Accordingly, 
the final rule provides that recipients may use SLFRF funds for 
projects that are needed to support increased population in certain 
cases. ARPA limits projects to those investments that are 
``necessary.'' As discussed above, Treasury interprets this to mean 
that the investments must be (1) responsive to an identified need to 
achieve or maintain an adequate minimum level of service, which for 
some eligible project categories may include a reasonable projection of 
increased need, whether due to population growth or otherwise and (2) a 
cost-effective means for meeting that need, taking into account 
available alternatives. For this eligible use category, expansion of 
drinking water service infrastructure, the project must also be 
projected to be sustainable over its estimated useful life.
    Investments must be determined to be necessary when they are 
initiated. Accordingly, Treasury is clarifying in the final rule that 
the need identified for a water or sewer project may include a need 
arising from reasonable expectations of future population growth, 
provided that it is necessary at the time the investment is initiated 
for the recipient to make the investment to meet this growth. For 
example, a recipient expecting increased population during the period 
of performance may install a drinking water treatment plant to meet 
that growth. In addition, a recipient expecting increased population 
growth outside the period of performance may install the treatment 
plant if the planning and construction timeline for the project would 
require work to begin during the performance period in order to meet 
the expected population growth. A recipient may install transmission 
lines as part of the development of new housing occurring during the 
period of performance. In this case, the housing development must be in 
progress; a recipient may not use the SLFRF funds to install a water 
main, for example, to an undeveloped tract in the expectation that in 
the future that tract will be developed with housing, because there 
would be no need for that investment to be made at the time it is 
initiated.
    For the reasons discussed above, if a project is undertaken to 
address expected growth in population, the project must also be 
sustainable, meaning that the project can continue providing the 
adequate minimum level of service for its estimated useful life, taking 
into account projected impacts of changes to the climate and other 
expected demands on the source of water. In considering how much of a 
source of water will be available in the future for the drinking water 
project, a recipient must consider that a source of water may be drawn 
upon or otherwise used for other current and expected uses, including 
use by fish and other wildlife. A drinking water project that is 
designed to address a growing population cannot be considered a 
necessary investment if the source of drinking water will cease to be 
available to meet the population's needs before the end of the 
estimated useful life of the project. In such a case, a recipient 
should consider alternative sources for drinking water. See 
``Interpretation of Necessary Investments and Water and Sewer 
Infrastructure'' above for more information.
Non-Federal Matching Requirements for Authorized Bureau of Reclamation 
Projects
    The Infrastructure Investment and Jobs Act amends sections 602(c) 
and 603(c) of the Social Security Act to add an additional eligible use 
of SLFRF funds, providing that SLFRF funds ``may be used for purposes 
of satisfying any non-Federal matching requirement required for [an 
authorized Bureau of Reclamation project].'' \326\
---------------------------------------------------------------------------

    \326\ See Public Law 117-58, 40909(a)-(b) (Nov. 15, 2021).
---------------------------------------------------------------------------

    This amendment permits the use of SLFRF funds to meet non-federal 
matching requirements of any authorized Bureau of Reclamation project, 
regardless of whether the underlying project would be an eligible use 
of SLFRF funds under the water and sewer infrastructure eligible use 
category. These amendments are effective as of March 11, 2021, as if 
included in the ARPA at the time of its enactment.\327\ Treasury will 
provide further guidance to recipients on the scope of Bureau of 
Reclamation water projects and expenses covered by this provision.
---------------------------------------------------------------------------

    \327\ See Public Law 117-58 Sec.  40909(c).
---------------------------------------------------------------------------

Floodplain Management and Flood Mitigation Projects
    Public Comment: Several commenters requested that projects to 
address floodwater, including floodplain management and flood 
mitigation projects, be included as an eligible use of SLFRF funds. 
Within this category of floodplain management and flood mitigation 
infrastructure, several commenters requested that the installation of 
levees, flood walls, sea walls, elevation projects, dredging, or 
nature-based flood mitigation projects be included as eligible 
projects.
    Treasury Response: Treasury notes that some floodplain management 
and flood mitigation infrastructure projects, including green 
infrastructure designed to protect treatment works from flood waters 
and flood impact are currently eligible under the CWSRF and therefore 
continue to be eligible under the final rule.
    Treasury has not included floodplain management and flood 
mitigation projects more generally as eligible under the final rule. 
Although floodplain management and flood mitigation are functions of 
many state and local governments, they are not the sort of generally-
provided essential services included within the meaning of water

[[Page 4417]]

and sewer projects under the ARPA, as discussed above.
Irrigation
    Public Comment: Some commenters requested that irrigation projects 
be an eligible use because they consider such projects to be critical 
infrastructure. Several commenters supported this request by noting 
that irrigation systems may be used to replenish aquifers and recharge 
wells, in addition to delivering water for irrigation. One commenter 
also noted that the national irrigation system is antiquated and in 
need of repair.
    Treasury Response: Some irrigation projects were eligible under the 
interim final rule and continue to be eligible under the final rule as 
a result of their inclusion as eligible projects under the CWSRF. For 
example, water efficient irrigation equipment that reduces the runoff 
of nutrients and implements a management program established under 
section 319 of the CWA and/or a conservation and management plan under 
section 320 of the CWA are eligible uses under the CWSRF and therefore 
continue to be an eligible use of SLFRF funds under the final rule. 
Likewise, projects to receive and distribute reclaimed water for 
irrigation systems or other agricultural use are eligible under the 
CWSRF and therefore continue to be an eligible use under the final 
rule. Unlike projects for the improvement of irrigation systems 
generally, these reclaimed water projects are related to wastewater 
treatment and stormwater management, which are within the scope of the 
meaning of water and sewer infrastructure for purposes of ARPA.
    Treasury considered commenter requests for inclusion of additional 
irrigation infrastructure and determined that irrigation projects more 
generally are not permitted under the final rule. Although these types 
of projects may be water-related infrastructure, they are not the sort 
of generally-provided essential services included within the meaning of 
water and sewer projects under ARPA, as discussed above.
Consumer Incentive Programs
    Public Comment: One commenter requested that consumer incentive 
programs in the areas of water use efficiency, conservation, green 
infrastructure, reuse, and other distributed solutions be an allowable 
use of SLFRF.
    Treasury Response: The DWSRF and CWSRF eligibilities include the 
development and implementation of incentive and educational programs 
that address and promote water conservation, source water protection, 
and efficiency related to infrastructure improvements, e.g., incentives 
such as rebates to install green infrastructure such as rain barrels or 
promote other water conservation activities. Treasury clarifies that 
such project types were eligible under the interim final rule and 
continue to be eligible under the final rule.
2. Broadband Infrastructure
    Under the ARPA, recipient governments may use SLFRF funds to make 
``necessary investments in . . . broadband infrastructure.'' In the 
Supplementary Information to the interim final rule, Treasury 
interpreted necessary investments in infrastructure as investments 
``designed to provide an adequate minimum level of service and [that] 
are unlikely to be made using private sources of funds.'' Treasury 
explained that, with respect to broadband specifically, such necessary 
investments include projects that ``establish [ ] or improve [ ] 
broadband service to underserved populations to reach an adequate level 
to permit a household to work or attend school, and that are unlikely 
to be met with private sources of funds.''
Summary of Interim Final Rule, Public Comments, and Treasury Response
    Summary of Interim Final Rule: In implementing the ARPA, the 
interim final rule provided that eligible broadband infrastructure 
investments are limited to those that are designed to provide service 
to unserved or underserved households or businesses, defined as those 
that lack access to a wireline connection capable of reliably 
delivering at least minimum speeds of 25 Mbps download and 3 Mbps 
upload. The interim final rule also provided that eligible projects 
under the SLFRF are limited to those that are designed to deliver, upon 
project completion, service that reliably meets or exceeds symmetrical 
upload and download speeds of 100 Mbps. In instances where it would not 
be practicable for a project to deliver such service speeds because of 
the geography, topography, or excessive costs associated with such a 
project, the interim final rule provided that the project would be 
required to be designed to deliver, upon project completion, service 
that reliably meets or exceeds 100 Mbps download speed and between at 
least 20 Mbps and 100 Mbps upload speeds and be scalable to a minimum 
of 100 Mbps symmetrical for download and upload speeds.
    In addition, Treasury, in the Supplementary Information to the 
interim final rule, encouraged recipients to pursue a number of other 
objectives. First, Treasury encouraged recipients to prioritize 
investments in fiber-optic infrastructure wherever feasible and focus 
on projects that deliver a physical broadband connection by 
prioritizing projects that achieve last-mile connections. Second, 
Treasury encouraged recipients to integrate affordability options into 
their program design. Third, Treasury encouraged recipients to 
prioritize support for local networks owned, operated, or affiliated 
with local governments, nonprofits, and cooperatives. Fourth, Treasury 
encouraged recipients to avoid investing in locations with existing 
agreements to build reliable wireline service with minimum speeds of 
100 Mbps download and 20 Mbps upload by December 31, 2024, in order to 
avoid duplication of efforts and resources. Finally, following release 
of the interim final rule, Treasury provided further guidance 
clarifying some aspects of broadband infrastructure eligibility, 
specifically on flexibility for recipients to determine eligible areas 
to be served,\328\ middle-mile projects,\329\ pre-project development 
costs,\330\ broadband connections to schools or libraries,\331\ and the 
applicability of the National Environmental Policy Act (NEPA) and the 
Davis-Bacon Act.\332\
---------------------------------------------------------------------------

    \328\ See FAQ 6.8, 6.9, 6.11. Coronavirus State and Local Fiscal 
Recovery Funds, Frequently Asked Questions, as of July 19, 2021; 
https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
    \329\ See FAQ 6.10. Id.
    \330\ See FAQ 6.12. Id.
    \331\ See FAQ 6.16. Id.
    \332\ See FAQ 6.4, 6.17. Id.
---------------------------------------------------------------------------

    Summary of Public Comments: Treasury received several comments on 
the interim final rule's requirements regarding eligible areas for 
investment and build-to speed standards, as well as Treasury's 
encouragements in the Supplementary Information of the interim final 
rule. Many commenters found the interim final rule's requirement to 
limit projects to those designed to provide service to unserved or 
underserved households or businesses to be appropriately focused on 
hard-to-reach areas. In contrast, other commenters argued that this 
requirement was too restrictive and that it would limit the ability for 
some recipients, particularly local governments, to invest in broadband 
infrastructure.
    Separately, some commenters supported the interim final rule's 
requirement that eligible projects be built to reliable speeds of 100 
Mbps symmetrical, with an exception for areas where it was 
impracticable, and encouragement that projects be built with fiber-
optic infrastructure, while a

[[Page 4418]]

few others argued that the interim final rule should remain technology-
neutral and that lower speed standards would be more appropriate for 
today's usage needs.
    Summary of Treasury Response: In response to the comments, the 
final rule expands eligible areas for investment by requiring 
recipients to invest in projects designed to provide service to 
households and businesses with an identified need for additional 
broadband infrastructure investment, which would include but not be 
limited to a lack of broadband service reliably delivering certain 
speeds. In addition, as discussed further below, the final rule further 
supports the expansion of affordable access to broadband service for 
households by requiring that recipients use a provider that 
participates in a qualifying affordability plan. Treasury encourages 
recipients to prioritize projects that are designed to provide service 
to locations not currently served by a wireline connection that 
reliably delivers at least 100 Mbps of download speed and 20 Mbps of 
upload speed.
    The final rule maintains the interim final rule's requirement that 
eligible projects be designed to, upon completion, reliably meet or 
exceed symmetrical 100 Mbps download and upload speeds. As was the case 
under the interim final rule, in cases where it is not practicable, 
because of the excessive cost of the project or geography or topography 
of the area to be served by the project, eligible projects may be 
designed to reliably meet or exceed 100 Mbps download speed and between 
at least 20 Mbps and 100 Mbps upload speed and be scalable to a minimum 
of 100 Mbps download speed and 100 Mbps upload speed. Treasury 
continues to encourage recipients to prioritize investments in fiber-
optic infrastructure wherever feasible and to focus on projects that 
will achieve last-mile connections, whether by focusing directly on 
funding last-mile projects or by ensuring that funded middle-mile 
projects have commitments in place to support new and/or improved last-
mile service.
    The final rule requires recipients to address the affordability 
needs of low-income consumers in accessing broadband networks funded by 
SLFRF, given that such a project cannot be considered a necessary 
investment in broadband infrastructure if it is not affordable to the 
population the project would serve. Recipients must require the service 
provider for a completed broadband infrastructure investment project 
that provides service to households to either participate in the 
Federal Communications Commission's (FCC) Affordable Connectivity 
Program (ACP), or otherwise provide access to a broad-based 
affordability program to low-income consumers in the proposed service 
area of the broadband infrastructure that provides benefits to 
households commensurate with those provided under the ACP.
    Treasury also recognizes the importance of affordable broadband 
access for all consumers beyond those that are low-income. As part of 
their project selection process, recipients are encouraged to consult 
with the community on the general affordability needs of the target 
markets in the proposed service area. Additionally, recipients are 
encouraged to require that services provided by a broadband 
infrastructure project include at least one low-cost option offered 
without data usage caps and at speeds that are sufficient for a 
household with multiple users to simultaneously telework and engage in 
remote learning. Recipients will be required to report speed, pricing, 
and any data allowance information as part of mandatory reporting to 
Treasury.
    The final rule also clarifies that subsidies to households and 
communities impacted by the pandemic to access the internet, broadband 
adoption programs, digital literacy programs, and device programs are 
eligible programs to respond to the public health and negative economic 
impacts of the pandemic under sections 602(c)(1)(A) and 603(c)(1)(A). 
See section Assistance to Households in Negative Economic Impacts.
    Treasury continues to encourage recipients to prioritize support 
for broadband networks owned, operated by, or affiliated with local 
governments, nonprofits, and cooperatives. In addition, to the extent 
recipients are considering deploying broadband to locations where there 
are existing enforceable federal or state funding commitments for 
reliable service at speeds of at least 100 Mbps download speed and 20 
Mbps upload speed, recipients must ensure that SLFRF funds are designed 
to address an identified need for additional broadband investment that 
is not met by existing federal or state funding commitments. Recipients 
must also ensure that SLFRF funds will not be used for costs that will 
be reimbursed by the other federal or state funding streams. Further, 
Treasury highlights that recipients are subject to the prohibition on 
use of grant funds to procure or obtain certain telecommunications and 
video surveillance services or equipment as outlined in 2 CFR 200.216 
and 2 CFR 200.471 and clarifies that modernization of cybersecurity for 
existing and new broadband networks are eligible uses of funds under 
sections 602(c)(1)(D) and 603(c)(1)(D).
    Finally, this Supplementary Information to the final rule 
incorporates and confirms guidance issued by Treasury following the 
interim final rule regarding middle-mile projects,\333\ pre-project 
development costs,\334\ broadband connections to schools or 
libraries,\335\ and applicability of the National Environmental Policy 
Act (NEPA) and Davis-Bacon Act.\336\
---------------------------------------------------------------------------

    \333\ See FAQ 6.10. Coronavirus State and Local Fiscal Recovery 
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
    \334\ See FAQ 6.12. Id.
    \335\ See FAQ 6.16. Id.
    \336\ See FAQ 6.4, 6.17. Id.
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    The remainder of this section provides additional details on the 
final rule. Specifically, these sections address: (1) Eligible areas 
for investment; (2) build-to speed standards; (3) affordability; (4) 
public networks; (5) duplication of efforts and resources; (6) 
cybersecurity; and (7) use of funds to meet non-federal match under the 
Infrastructure Investment and Jobs Act.
Eligible Areas for Investment
    The interim final rule limited eligible broadband investments to 
projects focused on delivering service to unserved or underserved 
locations, defined as households or businesses that lack access to a 
wireline connection capable of reliably delivering at least minimum 
speeds of 25 Mbps download and 3 Mbps upload. This targeted approach 
was generally consistent with certain speed thresholds used in other 
federal programs to identify eligible areas for federal investment in 
broadband infrastructure, such as the FCC's Rural Digital Opportunity 
Fund (RDOF) program and the National Telecommunication and Information 
Administration's (NTIA's) Broadband Infrastructure Program, and 
generally aligns with the FCC's benchmark for an ``advanced 
telecommunications capability'' for wireline broadband services.
    Public Comment: Many commenters discussed the disadvantages of such 
an approach. Some commenters, including several local government 
recipients, argued that limiting investments to locations without 
access to reliable wireline 25/3 Mbps \337\ was too

[[Page 4419]]

restrictive because some urban jurisdictions are already mostly or 
entirely covered by a network with at least 25/3 Mbps speeds yet lack 
widespread broadband adoption for various reasons. Commenters suggested 
that recipients would benefit from greater flexibility to provide 
necessary investments in broadband access in areas that are nominally 
covered by speeds of at least 25/3 Mbps, such as to provide affordable 
broadband access in low-income areas or to address service quality and 
reliability issues. Further, commenters argued that Treasury's 
requirement that new projects meet minimum reliable speeds of 100 Mbps 
symmetrical was inconsistent with the requirement that broadband 
infrastructure projects focus on those with access to significantly 
lower speeds, and further noted that several states have already 
expanded the focus of their broadband programs beyond those without 
reliable access to speeds of 25/3 Mbps. Commenters argued that if the 
limitation to unserved and underserved households and businesses were 
maintained, the definition of unserved and underserved households and 
businesses should be revised to include households and businesses 
currently served by higher standards. Commenters proposed a number of 
alternative cutoff speeds, including 25/25 Mbps, 50/10 Mbps, and 100 
Mbps symmetrical. Others expressed support for providing flexibility 
for recipients to make their own determination on eligible areas for 
investment. These commenters referenced studies indicating that 25/3 
Mbps is inadequate for today's modern household or business needs.
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    \337\ In the remainder of this Supplementary Information, ``25/3 
Mbps'' refers to broadband infrastructure that is designed to 
reliably meet or exceed at least 25 Mbps download speeds and 3 Mbps 
upload speeds. ``100 Mbps'' symmetrical refers to broadband 
infrastructure that is designed to reliably meet or exceed at least 
100 Mbps download speeds and 100 Mbps upload speeds.
---------------------------------------------------------------------------

    Some commenters advocated for unserved and underserved areas to be 
prioritized while providing flexibility for recipients to serve areas 
beyond those designated as unserved or underserved. Reflecting the 
perceived restrictiveness of the interim final rule approach, some 
commenters asked for assurance that projects conducted under other 
categories of SLFRF eligible uses, specifically to respond to the 
public health and negative economic impacts of the pandemic under 
sections 602(c)(1)(A)-(C) and 603(c)(1)(A)-(C), were not barred by the 
presence of 25/3 Mbps service, including ``gap networks,'' which are 
networks designed to offer low-cost or no-cost internet access for 
lower-income households with low broadband adoption rates.
    Commenters suggested additional factors to be incorporated in the 
consideration of locations that are eligible to be served. Many 
commenters suggested that affordability should be considered a key 
factor when determining whether a community has access to broadband, as 
the presence of 25/3 Mbps service does not necessarily mean the service 
is financially accessible to the area's residents. Commenters noted 
that surveys indicate that affordability, not lack of coverage, is the 
most significant barrier for most Americans who do not have robust 
broadband service in their households. Some advocated that the final 
rule allow for investments in areas with existing reliable wireline 
access at or above 25/3 Mbps as long as existing broadband service has 
been unaffordable for a certain segment of the population; others 
advocated that Treasury presume eligibility when investments are made 
in certain areas, such as Qualified Census Tracts or neighborhoods with 
persistent poverty, or are made by Tribal governments. Separately, some 
commenters noted that Treasury should provide more clarification on 
what constitutes a ``reliabl[e]'' connection, including providing 
details as to latency, jitter, and other technical specifications that 
would meet that standard, and what it means for certain technologies, 
such as copper and other outdated technologies, to be deemed 
presumptively unreliable.
    Other commenters supported the interim final rule's approach on 
eligible areas for investment or suggested tightening eligibility even 
further. They argued that higher speed thresholds beyond 25/3 Mbps 
would likely lead to investments in or building of new broadband 
infrastructure in areas already served by broadband at speeds these 
commenters considered sufficient; these areas, commenters suggested, 
are less in need of federal assistance and permitting investments here 
could divert funding away from rural areas to more densely populated 
areas.
    Treasury Response: The final rule expands eligible areas for 
investment by requiring recipients to invest in projects designed to 
provide service to households and businesses with an identified need 
for additional broadband infrastructure investment. Recipients have 
flexibility to identify a need for additional broadband infrastructure 
investment: Examples of need include lack of access to a connection 
that reliably meets or exceeds symmetrical 100 Mbps download and upload 
speeds, lack of affordable access to broadband service, or lack of 
reliable broadband service. Recipients are encouraged to prioritize 
projects that are designed to provide service to locations not 
currently served by a wireline connection that reliably delivers at 
least 100 Mbps of download speed and 20 Mbps of upload speed, as many 
commenters indicated that those without such service constitute hard-
to-reach areas in need of subsidized broadband deployment.
    Households and businesses with an identified need for additional 
broadband infrastructure investment do not have to be the only ones in 
the service area served by an eligible broadband infrastructure 
project. Indeed, serving these households and businesses may require a 
holistic approach that provides service to a wider area, for example, 
in order to make ongoing service of certain households or businesses 
within the service area economical.
    Consistent with further guidance issued by Treasury,\338\ in 
determining areas for investment, recipients may choose to consider any 
available data, including but not limited to documentation of existing 
broadband internet service performance, federal and/or state collected 
broadband data, user speed test results, interviews with community 
members and business owners, reports from community organizations, and 
any other information they deem relevant.
---------------------------------------------------------------------------

    \338\ See FAQ 6.11. Coronavirus State and Local Fiscal Recovery 
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
---------------------------------------------------------------------------

    In evaluating such data, recipients may take into account a variety 
of factors, including whether users actually receive internet service 
at or above the speed thresholds at all hours of the day, whether 
factors other than speed such as latency, jitter, or deterioration of 
the existing connections make their user experience unreliable, and 
whether the existing service is being delivered by legacy technologies, 
such as copper telephone lines (typically using Digital Subscriber Line 
technology) or early versions of cable system technology (DOCSIS 2.0 or 
earlier),\339\ and other factors related to

[[Page 4420]]

the services to be provided by the project. In addition, recipients may 
consider the actual experience of current broadband customers when 
making their determinations; whether there is a provider serving the 
area that advertises or otherwise claims to offer broadband at a given 
speed is not dispositive.
---------------------------------------------------------------------------

    \339\ Legacy technologies such as copper telephone lines 
(typically using Digital Subscriber Line technology) and early 
versions of cable system technology (DOCSIS 2.0 or earlier) 
typically lag on speeds, latency, and other factors, as compared to 
more modern technologies like fiber-optic. See, e.g., https://www.fcc.gov/sites/default/files/tech_transitions_network_upgrades_that_may_affect_your_service.pdf 
(comparing copper to fiber and noting that copper wire networks have 
``limited speeds,'' are ``susceptible to signal interference/loss,'' 
and have a ``relatively short life''); https://data.fcc.gov/download/measuring-broadband-america/2020/2020-Fixed-Measuring-Broadband-America-Report.pdf (comparing fiber with DSL and cable 
technologies on a number of dimensions); https://www.eff.org/wp/case-fiber-home-today-why-fiber-superior-medium-21st-century-broadband (providing a technical background comparing fiber 
technology to other legacy technologies).
---------------------------------------------------------------------------

Build-To Speed Standards
    The interim final rule provided that a recipient may use funds to 
make investments in broadband infrastructure that is designed to, upon 
completion, reliably meet or exceed symmetrical 100 Mbps download and 
upload speeds. In cases where it is not practicable, because of the 
excessive cost of the project or the geography or topography of the 
area to be served by the project, eligible projects may be designed to 
reliably meet or exceed 100 Mbps download speed and between at least 20 
Mbps and 100 Mbps upload speed, so long as it is scalable to a minimum 
of 100 Mbps download speed and 100 Mbps upload speed. Relatedly, 
Treasury in the Supplementary Information to the interim final rule 
encouraged recipients to prioritize investments in fiber-optic 
infrastructure wherever feasible and to prioritize projects that 
achieve last-mile connections.
    Public Comment: Many commenters discussed the advantages of setting 
minimum symmetrical download and upload speeds of reliable 100 Mbps as 
the speed threshold for new projects. Some commenters indicated support 
for the interim final rule's standard as it takes into account growing 
demands on internet use resulting from pandemic broadband usage and 
suggested that such a standard will help to ensure that networks built 
with SLFRF funds remain valuable for years to come, even as demands 
continue to accelerate, particularly on upload speeds. Some also 
indicated that the interim final rule standard has the effect of 
prioritizing the use of fiber-optic infrastructure to deliver such 
speeds, which some noted was a ``gold standard'' future-proof 
technology, although some commenters noted that other technologies like 
fixed wireless have been shown to deliver such speeds in certain 
circumstances.
    Other commenters suggested that 100 Mbps symmetrical speeds were 
unnecessary given current broadband usage needs and that such high 
standards may have the potential to slow down expansion to unserved or 
underserved rural areas. Some argued that setting this symmetrical 
threshold may limit the type of technologies that can be used, thereby 
decreasing competition and limiting flexibility to recipients whose 
communities might be better served by technologies such as wireless 
solutions or inexpensive gap networks. Commenters suggested alternate 
minimum speeds, ranging from 25/3 Mbps (which some argued best balances 
reaching all communities and maximizing the impact of federal funds) to 
100/20 Mbps (which some argued best serves the typical broadband usage 
patterns of households and businesses, including new pandemic-driven 
needs). A few commenters suggested a higher minimum speed, such as 
gigabit speeds, advocating that such speeds were necessary for a 
network to last at least a decade.
    Many commenters supported the interim final rule's lower speed 
standards for projects where it is impracticable to meet minimum 
reliable speeds of 100 Mbps symmetrical, as it provides flexibility for 
recipients to invest in hard-to-reach areas, such as those in 
mountainous regions. A few commenters indicated that Treasury should 
more clearly define the characteristics of a location eligible for this 
exception. Some indicated that the minimum standard for all new 
projects should be 100 Mbps symmetrical. In contrast, others argued 
that scalability to 100 Mbps symmetrical should not be a requirement to 
meet today's demands, particularly in hard-to-reach areas.
    Some commenters requested that Treasury clarify eligibility for 
middle-mile projects as these projects potentially provide connectivity 
to far-reaching areas, while other commenters suggested that last-mile 
projects generally require more capital investment and are therefore 
most in need of government support.
    Treasury Response: The final rule maintains the interim final 
rule's requirement that eligible projects be designed to, upon 
completion, reliably meet or exceed symmetrical 100 Mbps download and 
upload speeds, with the interim final rule's exception for projects 
where it is impracticable to build to such speeds due to excessive 
cost, geography, or topography of the area to be served by the project. 
Given the build time associated with broadband infrastructure projects, 
these standards will enable SLFRF funds to fund lasting infrastructure 
that will be able to accommodate increased network demand once the 
network is complete,\340\ while providing flexibility for certain 
locations to meet lower speed standards where 100 Mbps symmetrical 
speeds are impracticable.
---------------------------------------------------------------------------

    \340\ Using the Federal Communications Commission (FCC) 
Broadband Speed Guide, a household with two telecommuters and two to 
three remote learners today is estimated to need 100 Mbps download 
to work simultaneously. See Federal Communications Commission, 
Broadband Speed Guide, available at https://www.fcc.gov/consumers/guides/broadband-speed-guide (last visited October 28, 2021).
---------------------------------------------------------------------------

    To illustrate the accelerating need for higher upload speeds, by 
one measure, mean upload speeds as of October 2021 increased to 75.21 
Mbps as compared to 62.11 Mbps a year earlier.\341\ Jurisdictions are 
increasingly responding to the growing demands of their communities for 
high speeds; for example, Illinois requires 100 Mbps symmetrical 
service as the construction standard for their state broadband grant 
programs. The 100 Mbps symmetrical standard accounts for increased 
pandemic internet usage and provides adequate upload speeds for 
individuals and businesses to accommodate interactive applications such 
as virtual learning and videoconferencing, while also helping ensure 
that funding is responsibly used to provide a true and lasting benefit 
for years to come. Treasury continues to encourage recipients to 
prioritize investments in fiber-optic infrastructure wherever feasible, 
as such advanced technology enables the next generation of application 
solutions for all communities and is capable of delivering superior, 
reliable performance and is generally most efficiently scalable to meet 
future needs.\342\ In designing these projects, recipients should 
ensure that the broadband infrastructure provides ``reliable'' service 
at required speeds and are not required to rely on providers' 
advertised speeds in their assessments.
---------------------------------------------------------------------------

    \341\ United States' Mobile and Broadband Internet Speeds--
Speedtest Global Index, available at https://www.speedtest.net/global-index/united-states#fixed.
    \342\ Bennett Cyphers, The Case for Fiber to the Home, Today: 
Why Fiber is a Superior Medium for 21st Century Broadband, 
Electronic Frontier Foundation (October 16, 2019), https://www.eff.org/wp/case-fiber-home-today-why-fiber-superior-medium-21st-century-broadband.
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    Consistent with further guidance issued by Treasury,\343\ while 
recipients are permitted to make investments in ``middle-mile'' 
connections that otherwise satisfy the requirements of the final rule, 
Treasury continues to encourage recipients to focus on

[[Page 4421]]

projects that will achieve last-mile connections--whether by focusing 
directly on funding last-mile projects or by ensuring that funded 
middle-mile projects have commitments in place to support new and/or 
improved last-mile service.
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    \343\ See FAQ 6.10, Coronavirus State and Local Fiscal Recovery 
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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Affordability
    The interim final rule encouraged recipients to consider ways to 
integrate affordability options into their program design but did not 
require recipients to take particular actions. The interim final rule 
also provided that assisting households with internet access and 
digital literacy is an eligible use of SLFRF funds under sections 
602(c)(1)(A) and 603(c)(1)(A) to respond to the negative economic 
impacts of COVID-19.
    Public Comment: Many commenters suggested that Treasury provide 
recipients with a broader set of tools to tackle what the commenters 
characterized as an affordability crisis in the broadband sector. As 
noted above, some commenters proposed that Treasury consider 
affordability when determining whether an area is unserved or 
underserved by broadband. Some commenters indicated that the final rule 
should allow for the construction of broadband networks in low-income 
neighborhoods including low-cost or no-cost gap networks, even in areas 
with existing service at the speeds required under the interim final 
rule. Other commenters voiced support for direct subsidies to low-
income communities to afford broadband service, which would provide 
additional incentives for providers to serve these communities.
    Treasury Response: In response to many commenters that highlighted 
the importance of affordability in providing meaningful access to 
necessary broadband infrastructure, the final rule provides additional 
requirements to address the affordability needs of low-income consumers 
in accessing broadband networks funded by SLFRF. Recipients must 
require the service provider for a completed broadband infrastructure 
investment project that provides service to households to:
    <bullet> Participate in the Federal Communications Commission's 
(FCC) Affordable Connectivity Program (ACP); or
    <bullet> Otherwise provide access to a broad-based affordability 
program to low-income consumers in the proposed service area of the 
broadband infrastructure that provides benefits to households 
commensurate with those provided under the ACP.
    Recipients must require providers to participate in or provide 
access to these programs through the life of the ACP. This requirement 
will no longer apply once the SLFRF-funded broadband infrastructure is 
no longer in use.
    Furthermore, Treasury also recognizes the importance of affordable 
broadband access for all consumers beyond those that are low income. As 
part of their project selection process, recipients are encouraged to 
consult with the community on the general affordability needs of the 
target markets in the proposed service area. Additionally, recipients 
are encouraged to require that services provided by a broadband 
infrastructure project include at least one low-cost option offered 
without data usage caps at speeds that are sufficient for a household 
with multiple users to simultaneously telework and engage in remote 
learning. Treasury will require recipients to report speed, pricing, 
and any data allowance information as part of their mandatory reporting 
to Treasury.
    Further, Treasury is clarifying that, as a response to the public 
health and negative economic impacts of the pandemic, recipients may 
provide households and communities impacted by the pandemic with 
subsidies to help pay for internet service, digital literacy programs, 
broadband adoption programs, and device programs that provide 
discounted or no-cost devices for low-income households to access the 
internet. For further discussion of this eligible use category, see the 
section internet Assistance in Assistance to Households in Public 
Health and Negative Economic Impacts.
Public Networks
    The interim final rule encouraged recipients to prioritize support 
for local networks owned, operated, or affiliated with local 
governments, nonprofits, and cooperatives.
    Public Comment: Many commenters voiced their support for Treasury's 
encouragement that recipients work with governmental or community 
entities to establish local networks, arguing that they have been shown 
to effectively provide broadband access to areas that would otherwise 
be left with unaffordable or insufficient service. These commenters 
suggested that, since these entities are less driven by financial 
returns to investment than private providers, in some circumstances 
they may be able to provide robust service at a lower price as compared 
to private providers, along with potentially increasing local 
competition in a service area.
    Other commenters argued against Treasury's encouragement, remarking 
that private businesses have a robust track record of serving hard-to-
reach customers. These commenters argued that commercial providers have 
greater technical and operational expertise in deploying and operating 
broadband networks and may be able to construct broadband networks with 
greater efficiency. Additionally, some commenters argued that providing 
what they considered an unfair competitive advantage for government- or 
community-owned or operated networks may hurt consumers over time.
    Treasury Response: The final rule maintains the interim final 
rule's encouragement for recipients to prioritize support for broadband 
networks owned, operated by, or affiliated with local governments, 
nonprofits, and cooperatives, given that these networks have less 
pressure to generate profits and a commitment to serve entire 
communities.\344\ This encouragement provides flexibility for 
recipients to select providers that best fit their needs, while noting 
the critical role that networks owned, operated, or affiliated with 
local governments and community organizations can play in providing 
sufficient coverage, affordable access, or increased competition in the 
broadband sector.
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    \344\ The Executive Office of the President, Community-Based 
Broadband Solutions (January 2015), https://obamawhitehouse.archives.gov/sites/default/files/docs/community-based_broadband_report_by_executive_office_of_the_president.pdf.
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Duplication of Efforts and Resources
    Public Comment: Some commenters raised concerns that Treasury's 
encouragement in the interim final rule that recipients avoid funding 
projects in locations with an existing agreement to provide service 
that reliably delivers 100/20 Mbps by December 31, 2024 was too 
restrictive. Commenters noted that many plans do not always lead to a 
successful and complete deployment, as issues may arise that prevent 
such infrastructure from deploying on time or at all, and that several 
existing federal grants were designed and awarded before the onset of 
the COVID-19 pandemic and do not meet the critical broadband needs 
highlighted by the pandemic. Other commenters argued that Treasury's 
encouragement to avoid duplication of resources should be strengthened, 
as investing in areas with existing agreements would be an inefficient 
duplication of efforts.
    Treasury Response: Given the final rule's revised requirements on 
eligible areas for investment, this

[[Page 4422]]

Supplementary Information to the final rule also modifies the interim 
final rule's requirements around duplication of resources. Since 
recipients must ensure that the objective of the broadband projects is 
to serve locations with an identified need for additional broadband 
investment, the final rule provides that, to the extent recipients are 
considering deploying broadband to locations where there are existing 
enforceable federal or state funding commitments for reliable service 
at speeds of at least 100 Mbps download speed and 20 Mbps upload speed, 
recipients must ensure that SLFRF funds are designed to address an 
identified need for additional broadband investment that is not met by 
existing federal or state funding commitments. Recipients must also 
ensure that SLFRF funds will not be used for costs that will be 
reimbursed by the other federal or state funding streams.
Cybersecurity
    Public Comment: Several commenters expressed concern about the 
cybersecurity of new broadband projects funded with SLFRF funds and 
urged Treasury to prohibit recipients from utilizing SLFRF funds to 
procure equipment from certain providers from the People's Republic of 
China that may pose a national security risk. These commenters pointed 
out that the 2019 National Defense Authorization Act (NDAA) and the 
FCC's Universal Service Fund have similar prohibitions. Further, 
several commenters requested that Treasury explicitly include 
cybersecurity costs as an eligible use for broadband infrastructure 
investment given the growing threat of cyber-attacks and cyber-
intrusions into the nation's infrastructure.
    Treasury Response: Treasury highlights that investments in 
broadband infrastructure must be carried out in ways that comply with 
applicable federal laws, including the 2019 NDAA. Among other 
requirements contained in 2 CFR part 200, 2 CFR 200.216 implements 
certain provisions of the NDAA and contains prohibitions on the use of 
federal financial assistance to procure or obtain certain 
telecommunications and video surveillance services or equipment 
provided or produced by designated entities, including certain entities 
owned or controlled by the People's Republic of China. In addition, 2 
CFR 200.471 provides that certain telecommunications and video 
surveillance costs associated with 2 CFR 200.216 are unallowable.
    Further, the final rule allows for modernization of cybersecurity 
for existing and new broadband infrastructure as an eligible use under 
sections 602(c)(1)(D) and 603(c)(1)(D) as such investments are 
necessary for the reliability and resiliency of broadband 
infrastructure.\345\ Recipients may provide necessary investments in 
cybersecurity, including modernization of hardware and software, for 
existing and new broadband infrastructure regardless of their speed 
delivery standards. The final rule maintains the interim final rule's 
provision that allows for broader modernization of cybersecurity, 
including hardware, software, and protection of critical infrastructure 
as an eligible provision of government services, to the extent of 
revenue loss due to the pandemic, under sections 602(c)(1)(C) and 
603(c)(1)(C).
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    \345\ For more on the importance of cybersecurity to the 
reliability and resiliency of broadband networks, see: Federal 
Communications Commission, https://docs.fcc.gov/public/attachments/FCC-10-63A1.doc; Brookings Institute, Protecting the Cybersecurity 
of America's Networks (February 11, 2021), https://www.brookings.edu/blog/techtank/2021/02/11/protecting-the-cybersecurity-of-americas-networks/.
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Use of Funds To Meet Non-Federal Match Under the Infrastructure 
Investment and Jobs Act
    The Infrastructure Investment and Jobs Act specifies that, except 
as otherwise provided, an entity using funding under section 60102 of 
the law for broadband deployment ``shall provide, or require a 
subgrantee to provide, a contribution, derived from non-Federal funds 
(or funds from a Federal regional commission or authority) . . . of not 
less than 25 percent of project costs.'' \346\ It further states that 
the matching contribution may include funds provided to an eligible 
entity or subgrantee under the American Rescue Plan Act for the purpose 
of deployment of broadband service, which includes funds provided under 
the SLFRF program.
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    \346\ See Infrastructure Investment and Jobs Act, Public Law 
117-58 (2021).
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    SLFRF and the program established under section 60102 of the 
Infrastructure Investment and Jobs Act are separate programs with 
separate requirements. While section 60102 allows states and other 
eligible entities to use SLFRF funds as the source of matching funds 
for broadband deployment, the requirements of the SLFRF program still 
apply. As such, recipients that use SLFRF funds to meet the section 
60102 matching requirement will continue to be subject to the 
requirements of the SLFRF program.

III. Restrictions on Use

    While recipients have considerable flexibility to use funds to 
address the diverse needs of their communities, some restrictions on 
use of funds apply. The ARPA includes two statutory provisions that 
further define the boundaries of the statute's eligible uses. First, 
section 602(c)(2)(A) of the Social Security Act provides that states 
and territories may not ``use the funds . . . to either directly or 
indirectly offset a reduction in . . . net tax revenue . . . resulting 
from a change in law, regulation, or administrative interpretation 
during the covered period that reduces any tax . . . or delays the 
imposition of any tax or tax increase.'' Second, sections 602(c)(2)(B) 
and 603(c)(2) prohibit all recipients, except Tribal governments, from 
using funds for deposit into any pension fund. These restrictions 
support use of funds only for the congressionally permitted purposes 
described in the Eligible Uses section by providing a backstop against 
the use of funds for purposes outside of the eligible use categories 
provided for in the statute.
    In addition to the restrictions on use of funds provided for in the 
ARPA statute, the interim final rule noted that several uses of funds 
would be ineligible under any eligible use category, including as a 
response to the public health and negative economic impacts of the 
pandemic or as a ``government service'' under the revenue loss eligible 
use category. Specifically, use of funds for debt service, to replenish 
financial reserves, or to satisfy an obligation arising from a judicial 
settlement or judgment were ineligible uses of funds under the eligible 
use categories for public health and negative economic impacts and 
revenue loss. These restrictions apply to all recipients.
    Recipients should note that restrictions on use of funds for debt 
service, to replenish financial reserves, or to satisfy an obligation 
arising from a judicial settlement or judgment apply to all eligible 
use categories, not just the eligible use categories in which they were 
discussed in the interim final rule.
    Recipients are also subject to other restrictions on use of funds 
in the ARPA, the Award Terms and Conditions, and other federal laws. As 
discussed further below, uses of funds may not conflict with the 
overall statutory purpose of the ARPA to reduce the spread of COVID-19. 
Per the Award Terms and Conditions, recipients must adopt and abide by 
policies to prevent conflicts of interest. Finally, recipients are 
reminded that other federal laws

[[Page 4423]]

also apply to uses of funds, including environmental and civil rights 
laws.
    To enhance clarity, this Supplementary Information for the final 
rule consolidates these restrictions on use of funds into one section 
and makes clear that they apply to all eligible use categories and any 
use of funds under the program by recipients to whom each specific 
restriction applies.
    This section discusses the aforementioned restrictions, public 
comments received, and Treasury's response to these comments. For 
clarity, Treasury has divided the following discussion into (A) 
statutory restrictions under the ARPA, which include (1) offsetting a 
reduction in net tax revenue, and (2) deposits into pension funds, and 
(B) other restrictions on use, which include (1) debt service and 
replenishing reserves, (2) settlements and judgments, and (3) general 
restrictions.

A. Ineligible Uses of Funds Under the ARPA Statute

1. Offset a Reduction in Net Tax Revenue
    For states and territories (recipient governments \347\), section 
602(c)(2)(A)--the offset provision--prohibits the use of SLFRF funds to 
directly or indirectly offset a reduction in net tax revenue resulting 
from a change in law, regulation, or administrative interpretation 
\348\ during the covered period. If a state or territory uses SLFRF 
funds to offset a reduction in net tax revenue resulting from a change 
in law, regulation, or interpretation, the ARPA provides that the state 
or territory must repay to Treasury an amount equal to the lesser of 
(i) the amount of the applicable reduction attributable to the 
impermissible offset and (ii) the amount of SLFRF funds received by the 
state or territory. A state or territory that uses SLFRF funds to 
offset a reduction in net tax revenue does not forfeit its entire 
allocation of SLFRF funds (unless it misused the full allocation to 
offset a reduction in net tax revenue) or any non-SLFRF funding.
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    \347\ In this sub-section, ``recipient governments'' refers only 
to states and territories. In other sections, ``recipient 
governments'' refers more broadly to eligible governments receiving 
funding from the SLFRF.
    \348\ For brevity, this phrase is referred to as ``changes in 
law, regulation, or interpretation'' for the remainder of this 
Supplementary Information.
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    The interim final rule implements these conditions by establishing 
a framework for states and territories to determine the cost of changes 
in law, regulation, or interpretation that reduce tax revenue and to 
identify and value the sources of funds that will offset--i.e., cover 
the cost of--any reduction in net tax revenue resulting from such 
changes. The interim final rule recognizes three sources of funds that 
may offset a reduction in net tax revenue other than SLFRF funds: 
Organic revenue growth, increases in revenue due to policy changes 
(e.g., an increase in a tax rate), and certain cuts in spending.
    Specifically, the interim final rule establishes a step-by-step 
process for determining whether, and the extent to which, SLFRF funds 
have been used to offset a reduction in net tax revenue, based on 
information reported by the recipient government:
    <bullet> First, each year, each recipient government will identify 
and value the changes in law, regulation, or interpretation that would 
result in a reduction in net tax revenue, as it would in the ordinary 
course of its budgeting process. The sum of these values in the year 
for which the government is reporting is the amount it needs to ``pay 
for'' with sources other than SLFRF funds (total value of revenue 
reducing changes).
    <bullet> Second, the interim final rule recognizes that it may be 
difficult to predict how a change would affect net tax revenue in 
future years and, accordingly, provides that if the total value of the 
changes in the year for which the recipient government is reporting is 
below a de minimis level, as discussed below, the recipient government 
need not identify any sources of funding to pay for revenue reducing 
changes and will not be subject to recoupment.
    <bullet> Third, a recipient government will consider the amount of 
actual tax revenue recorded in the year for which it is reporting. If 
the recipient government's actual tax revenue is greater than the 
amount of tax revenue received by the recipient for the fiscal year 
ending 2019, adjusted annually for inflation, the recipient government 
will not be considered to have violated the offset provision because 
there will not have been a reduction in net tax revenue.
    <bullet> Fourth, if the recipient government's actual tax revenue 
is less than the amount of tax revenue received by the recipient 
government for the fiscal year ending 2019, adjusted annually for 
inflation, in the reporting year the recipient government will identify 
any sources of funds that have been used to permissibly offset the 
total value of covered tax changes other than SLFRF funds. These are:
    [cir] State or territory tax changes that would increase any source 
of general fund revenue, such as a change that would increase a tax 
rate; and
    [cir] Spending cuts in areas not being replaced by SLFRF funds.
    The recipient government will calculate the value of revenue 
reduction remaining after applying these sources of offsetting funding 
to the total value of revenue reducing changes--that is, how much of 
the tax change has not been paid for. The recipient government will 
then compare that value to the difference between the baseline and 
actual tax revenue. A recipient government will not be required to 
repay to Treasury an amount that is greater than the recipient 
government's actual tax revenue shortfall relative to the baseline 
(i.e., fiscal year 2019 tax revenue adjusted for inflation). This 
``revenue reduction cap,'' together with Step 3, ensures that recipient 
governments can use organic revenue growth to offset the cost of 
revenue reductions.
    <bullet> Finally, if there are any amounts that could be subject to 
recoupment, Treasury will provide notice to the recipient government of 
such amounts along with an explanation of such amounts. This process is 
discussed in greater detail in section Remediation and Recoupment of 
this Supplementary Information.
    Together, these steps allow Treasury to identify the amount of 
reduction in net tax revenue that both is attributable to covered 
changes and has been directly or indirectly offset with SLFRF funds.
    Overview of Comments: Many commenters supported the framework 
established under the interim final rule. These commenters argued that 
the offset provision, and the interim final rule's implementation of 
the offset provision, was essential to ensuring SLFRF funds are used in 
a manner consistent with the statute's defined eligible uses and, in 
particular, to support the use of SLFRF funds to build public sector 
capacity. Several commenters argued that the framework should be made 
more restrictive; for example, some comments advocated that the offset 
provision be applied to local governments.
    Other commenters argued that the offset provision and the interim 
final rule's implementation of the offset provision is too restrictive, 
with some asserting that the offset provision prohibits states from 
making changes to reduce taxes. Many of these commenters argued that 
the offset provision presents constitutional concerns. These commenters 
asserted that the offset provision is ambiguous and the restriction is 
unrelated to the purpose of the ARPA. These commenters also

[[Page 4424]]

argued that the generous amount of SLFRF funds provided to those 
governments gave recipient governments little choice as to whether to 
accept the SLFRF funds and, as a result, the offset provision is 
coercive. In describing these concerns and arguments, several of these 
commenters referenced litigation regarding the offset provision.\349\ 
Many of these commenters also expressed concern regarding the interim 
final rule's implementation of the offset provision. Some of these 
commenters argued that Treasury lacked the authority to implement the 
provision, asserting that the significance of the provision required 
Congress to make an explicit delegation of rulemaking authority and 
provide clearer principles by which Treasury should implement the 
provision. Finally, one commenter argued that the offset provision 
should only apply if the recipient expressly and intentionally uses 
SLFRF funds to offset a reduction in revenue, arguing that the term 
``offset'' implies a deliberate use SLFRF funds to ``pay for'' a tax 
cut.
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    \349\ See, e.g., State of West Virginia v. U.S. Department of 
the Treasury, No. 7:21-cv-00465-LSC, 2021 WL 2952863 (N.D. Ala. Jul. 
14, 2021); State of Ohio v. Yellen, No. 1:21-cv-181, 2021 WL 2712220 
(S.D. Ohio Jul. 1, 2021).
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    As discussed in the interim final rule, the offset provision does 
not prevent a recipient government from enacting a broad variety of tax 
changes. Rather, the offset provision prevents a recipient government 
from using SLFRF funds to offset a revenue reduction resulting from a 
tax cut. A recipient government would only be considered to have used 
SLFRF funds to offset a reduction in net tax revenue resulting from 
changes in law, regulation, or interpretation if, and to the extent 
that, the recipient government could not identify sufficient funds from 
sources other than SLFRF funds to offset the reduction in net tax 
revenue. Only if sufficient funds from other sources cannot be 
identified to cover the full cost of the reduction in net tax revenue 
resulting from changes in law, regulation, or interpretation, will the 
remaining amount not covered by these sources be considered to have 
been offset by SLFRF funds, in contravention of the offset provision. 
Consistent with the statutory text, the approach taken in the interim 
final rule recognizes that, because money is fungible, even if SLFRF 
funds are not explicitly or directly used to cover the costs of changes 
that reduce net tax revenue, those funds may be used in a manner 
inconsistent with the statute by indirectly being used to substitute 
for the state's or territory's funds that would otherwise have been 
needed to cover the costs of the reduction. As discussed below, the 
scope of changes in law, regulation, or interpretation is further 
limited to those that the recipient government voluntarily enacted 
during the covered period.
    Congress has the authority under the Spending Clause in Article I, 
section 8 of the Constitution to specify the permissible and 
impermissible uses of federal grants. The Supreme Court has repeatedly 
``upheld Congress's authority to condition the receipt of funds on the 
States' complying with restrictions on the use of those funds, because 
that is the means by which Congress ensures that the funds are spent 
according to its view of the `general Welfare.' '' \350\ ``The power to 
keep a watchful eye on expenditures . . . is bound up with 
congressional authority to spend in the first place.'' \351\ Assertions 
that the amount of SLFRF funds are sufficiently large to be coercive 
are inconsistent with the Supreme Court's reasoning in NFIB, which 
distinguished between conditions placed on new federal funds and 
conditions placed on existing federal funds and not based on the size 
of funds.\352\ Further, the conditions placed on the use of SLFRF funds 
under the ARPA--both the eligible uses and additional limitations on 
deposits into pension funds and the offset provision--were well known 
to recipient governments prior to recipient governments requesting to 
receive SLFRF funds. Finally, the ARPA provides Treasury with the 
express authority ``to issue such regulations as may be necessary or 
appropriate to carry out'' section 602, which includes the offset 
provision.
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    \350\ National Fed'n of Indep. Bus. v. Sebelius (NFIB), 567 U.S. 
519, 580 (2012) (plurality opinion); see, e.g., South Dakota v. 
Dole, 483 U.S. 203, 206-208 (1987); Gruver v. Louisiana Bd. of 
Supervisors for Louisiana State Univ. Agric. & Mech. Coll., 959 F.3d 
178, 183 (5th Cir.), cert. denied, 141 S. Ct. 901 (2020). For 
additional discussion of these issues, see, e.g., Brief Reply for 
Appellants, Ohio v. Yellen, No. 21-3787 (6th Cir. Oct. 26, 2021).
    \351\ Sabri v. United States, 541 U.S. 600, 608 (2004).
    \352\ The new federal funds offered by the Affordable Care Act 
totaled $100 billion per year. Even the dissenting Justices agreed 
that ``Congress could have made just the new funding provided under 
the ACA contingent on acceptance of the terms of the Medicaid 
Expansion,'' although they disagreed with the majority about whether 
that funding condition was severable. NFIB at 687-688 (joint 
dissent).
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    A number of commenters expressed concern regarding the burden 
associated with complying with the offset provision and the interim 
final rule. Similarly, other commenters argued that the framework 
provided in the interim final rule complicated implementation of the 
offset provision. Treasury took several steps to minimize burden for 
recipient governments in the interim final rule. For example, the 
interim final rule incorporates the types of information and modeling 
already used by states and territories in their own fiscal and 
budgeting processes. By incorporating existing budgeting processes and 
capabilities, states and territories will be able to assess and 
evaluate the relationship of tax and budget decisions to uses of SLFRF 
funds based on information they likely have or can readily obtain. This 
approach ensures that recipient governments have the information they 
need to understand the implications of their decisions regarding the 
use of SLFRF funds--and, in particular, whether they are using the 
funds to directly or indirectly offset a reduction in net tax revenue 
resulting from a change in law, regulation, or interpretation, making 
the funds potentially subject to recoupment. To further reduce burden, 
Treasury is considering whether the scope of reporting requirements can 
be further tailored.
    As described in greater detail below, Treasury is finalizing its 
implementation of the offset provision largely without change. This 
approach is consistent with the text of the ARPA. The remainder of this 
section discusses and responds to comments on specific aspects of the 
framework.
1. Definitions
    Covered change. The offset provision is triggered by a reduction in 
net tax revenue resulting from ``a change in law, regulation, or 
administrative interpretation.'' Consistent with this language, the 
interim final rule defines a ``covered change'' to include any final 
legislative or regulatory action, a new or changed administrative 
interpretation, and the phase-in or taking effect of any statute or 
rule where the phase-in or taking effect was not prescribed prior to 
the start of the covered period. Thus, the offset provision applies 
only to actions for which the change in policy occurs during the 
covered period; it excludes regulations or other actions that implement 
a change or law substantively enacted prior to March 3, 2021. For 
example, covered changes do not include a change in rate that is 
triggered automatically and based on statutory or regulatory criteria 
in effect prior to the covered period.\353\ Changed

[[Page 4425]]

administrative interpretations would not include corrections to replace 
prior inaccurate interpretations; such corrections would instead be 
treated as changes implementing legislation enacted or regulations 
issued prior to the covered period. The operative change in those 
circumstances is the underlying legislation or regulation that occurred 
prior to the covered period. Moreover, only changes within the control 
of the state or territory are considered covered changes. Finally, 
covered changes do not include changes that simply conform with recent 
changes in federal law (including those to conform to recent changes in 
federal taxation of unemployment insurance benefits and taxation of 
loan forgiveness under the Paycheck Protection Program).
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    \353\ For example, a state law that sets its earned income tax 
credit (EITC) at a fixed percentage of the federal EITC will see its 
EITC payments automatically increase--and thus its tax revenue 
reduced--because of the federal government's expansion of the EITC 
in the ARPA See, e.g., Tax Policy Center, How do state earned income 
tax credits work?, https://www.taxpolicycenter.org/briefing-book/how-do-state-earned-income-tax-credits-work/ (last visited May 9, 
2021).
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Scope of Covered Changes
    Public Comment: Several commenters argued that the definition of 
covered change, and thus the limitations of the offset provision, 
should apply to subsidies for businesses. Similarly, other commenters 
requested that Treasury clarify that the offset provision applies to 
tax abatements and reductions in corporate taxes, even if administered 
by a sub-unit of the recipient government. Citing to empirical research 
and other evidence, these commenters argued that these types of 
economic development policies were poorly administered, reduced public 
sector capacity, and were ineffective at achieving stated objectives of 
creating jobs, increasing income, and increasing economic growth. On 
the other hand, some commenters argued that, because subsidies were 
economically similar to some tax cuts, neither action should be 
considered a covered change and subject to the offset provision. 
Finally, other commenters requested that Treasury clarify whether 
covered changes must be broad-based policies or whether administrative 
decisions applicable to individuals would be considered covered 
changes.
    Treasury Response: Section 602(c)(2)(A) applies to any change that 
``reduces any tax (by providing for a reduction in a rate, a rebate, a 
deduction, a credit, or otherwise or delays the imposition of any tax 
or tax increase.'' Accordingly, and consistent with this statutory 
text, the final rule applies to covered changes that reduce any tax, 
which can include tax abatements, but does not apply to loans, grants, 
or other types of interventions that do not reduce tax revenue.\354\ In 
addition, by including changes in regulation or administrative 
interpretation, in addition to changes in law, within the scope of the 
offset provision, the ARPA recognizes that a recipient government may 
make a covered change through its legislature or may delegate the 
authority to make a covered change including, but not limited to, to a 
sub-unit of government. Treasury has revised the definition of 
``covered change'' in the final rule using the statutory language above 
to make clear that the offset provision only applies to such changes in 
law, regulation, or administrative interpretation. With respect to the 
question of whether covered changes could include administrative 
decisions applicable to individuals, as discussed above, a covered 
change includes a change in law, regulation, or administrative 
interpretation that reduces any tax. Such changes may apply to one or 
more individuals or entities, provided that--consistent with the 
statutory text--they result from a change in law, regulation, or 
administrative interpretation.
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    \354\ Assistance must be consistent with eligible uses of SLFRF 
funds. See section Eligible Uses of this Supplementary Information.
---------------------------------------------------------------------------

Prior Enactment and Phase-In
    Public Comment: A number of commenters expressed concern, or 
requested clarification, regarding changes that were enacted prior to 
the covered period but take effect or phase-in during the covered 
period. Several commenters argued that the definition of covered change 
should include changes that were made prior to the covered period but 
that phase-in during the covered period.
    Treasury Response: As discussed above, the offset provision is 
triggered by a reduction in net tax revenue resulting from ``a change 
in law, regulation, or administrative interpretation'' made during the 
covered period. Consistent with the statutory text, ``covered change'' 
is defined to include any final legislative or regulatory action, a new 
or changed administrative interpretation, and the phase-in or taking 
effect of any statute or rule where the phase-in or taking effect was 
not prescribed prior to the start of the covered period.
Conformity
    Public Comment: A number of commenters requested clarification on 
the scope of covered changes. Specifically, several commenters 
requested clarification on the scope of changes that would be 
considered as conforming to recent changes in federal law. These 
commenters requested that Treasury clarify whether actions to 
selectively conform with federal law would be considered covered 
changes and requested clarification regarding the extent to which 
changes would be considered ``recent.'' For example, these commenters 
requested clarification regarding conformance with the Global 
Intangible Low-Taxed Income provision of the 2017 Tax Cuts and Jobs 
Act. Some commenters further argued that changes that selectively 
conform or decouple from the Internal Revenue Code should be included 
within scope of covered changes and thus subject to the offset 
provision.
    Treasury Response: The final rule maintains the treatment of 
changes that simply conform with recent changes in federal law, such as 
those to conform to recent changes in federal taxation of unemployment 
insurance benefits and taxation of loan forgiveness under the Paycheck 
Protection Program \355\ and including other changes over the past 
several years. Regardless of the particular method of conformity and 
the effect on net tax revenue, Treasury views such changes as 
permissible under the offset provision.
---------------------------------------------------------------------------

    \355\ See Statement on State Fiscal Recovery Funds and Tax 
Conformity, April 7, 2021, available at https://home.treasury.gov/news/press-releases/jy0113.
---------------------------------------------------------------------------

    Accordingly, and for the reasons discussed above, Treasury is 
maintaining the definition of covered change without change.
    Tax revenue. The interim final rule's definition of ``tax revenue'' 
is based on the Census Bureau's definition of taxes, used for its 
Annual Survey of State Government Finances.\356\ It provides a 
consistent, well-established definition with which states and 
territories will be familiar and is consistent with the approach taken 
in section Revenue Loss of this Supplementary Information describing 
the implementation of sections 602(c)(1)(C) and 603(c)(1)(C) of the 
Social Security Act regarding revenue loss. A number of commenters 
expressed concern and requested clarification regarding the definition 
of ``tax revenue.'' These comments and responses are discussed in 
section Revenue Loss of this Supplemental Information and, for the 
reasons discussed above, Treasury is finalizing the definition of tax 
revenue without

[[Page 4426]]

change and maintaining a consistent definition of ``tax revenue.'' 
\357\
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    \356\ U.S. Census Bureau, Annual Survey of State and Local 
Government Finances Glossary, https://www.census.gov/programs-surveys/state/about/glossary.html (last visited Apr. 30, 2021).
    \357\ As discussed in section Revenue Loss of this Supplementary 
Information, for purposes of measuring revenue lost due to the 
pandemic under sections 602(c)(1)(C) and 603(c)(1)(C), recipients 
must adjust the amount of revenue lost to reflect changes that 
resulted from a tax increase or decrease. These adjustments do not 
apply to or affect the definition of tax revenue.
---------------------------------------------------------------------------

    Baseline. For purposes of measuring a reduction in net tax revenue, 
the interim final rule measures actual changes in tax revenue relative 
to a revenue baseline (baseline). The baseline is calculated as fiscal 
year 2019 (FY 2019) tax revenue indexed for inflation in each year of 
the covered period, with inflation calculated using the Bureau of 
Economic Analysis's Implicit Price Deflator.\358\
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    \358\ U.S. Department of Commerce, Bureau of Economic Analysis, 
GDP Price Deflator, https://www.bea.gov/data/prices-inflation/gdp-price-deflator (last visited Apr. 30, 2021). The FY 2019 baseline 
revenue is adjusted annually for inflation to allow for direct 
comparison of actual tax revenue in each year (reported in nominal 
terms) to baseline revenue in common units of measurement; without 
inflation adjustment, each dollar of reported actual tax revenue 
would be worth less than each dollar of baseline revenue expressed 
in 2019 terms.
---------------------------------------------------------------------------

    Public Comment: Some commenters expressed concern regarding the 
choice of FY 2019 as the baseline, arguing that the choice lacked 
justification and would make the offset provision more restrictive as 
applied to recipient governments that experienced a decline in revenue 
independent of making any covered changes.
    Treasury Response: Measuring a ``reduction'' in net tax revenue 
requires identification of a baseline. In other words, a ``reduction'' 
can be assessed only by comparing two amounts. The Act defines 
``covered period'' to begin on March 3, 2021, and thus the baseline 
year must end prior to March 3, 2021. As discussed in the interim final 
rule, FY 2019 is the last full fiscal year prior to the COVID-19 public 
health emergency, and thus is consistent with the statutory definition 
and does not include the extraordinary effects of the pandemic that 
began in 2020. Further, as discussed above, the interim final rule 
recognizes three potential ways that a recipient government may offset 
or ``pay for'' a reduction in net tax revenue due to a covered change: 
Increases in taxes, decreases in spending, and organic revenue growth. 
U.S. gross domestic product rebounded to exceed its pre-pandemic level 
in 2021,\359\ suggesting that an FY 2019 pre-pandemic baseline is a 
reasonable comparator for future revenue levels and provides recipients 
with flexibility to identify organic growth as a permissible offset. 
Finally, this baseline year is consistent with the approach directed by 
sections 602(c)(1)(C) and 603(c)(1)(C), which identify the ``most 
recent full fiscal year of the [state, territory, or Tribal government] 
prior to the emergency'' as the comparator for measuring revenue loss. 
For these reasons, Treasury is finalizing the definition of 
``baseline'' without change.
---------------------------------------------------------------------------

    \359\ Economy Statement by Catherine Wolfram, Acting Assistant 
Secretary for Economy Policy, for the Treasury Borrowing Advisory 
Committee November 1, 2021 (Nov. 1, 2021), available at https://home.treasury.gov/news/press-releases/jy0453.
---------------------------------------------------------------------------

    The interim final rule includes several other definitions that are 
applicable to the implementation of the offset provision, such as the 
term ``reporting year.'' \360\ Commenters did not express concern 
regarding other definitions in the interim final rule.
---------------------------------------------------------------------------

    \360\ One commenter requested clarification that references to 
fiscal year refer to the fiscal year of the recipient. ``Reporting 
year'' is defined in the interim final rule and final rule to mean 
``a single year or partial year within the covered period, aligned 
to the current fiscal year of the State or Territory during the 
covered period.''
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2. Framework
    The interim final rule provides a step-by-step framework, to be 
used in each reporting year, to determine whether a state or territory 
used SLFRF funds to offset a reduction in net tax revenue. Consistent 
with section 602(c)(2) and the interim final rule, the final rule 
applies to states and territories:
    (1) Covered changes that reduce tax revenue. Under the interim 
final rule, a recipient government identifies and values covered 
changes that the recipient government predicts will have the effect of 
reducing tax revenue in a given reporting year, similar to the way it 
would in the ordinary course of its budgeting process. The interim 
final rule states that the value of these covered changes may be 
reported based on estimated values produced by a budget model, 
incorporating reasonable assumptions, that aligns with the recipient 
government's existing approach for measuring the effects of fiscal 
policies, and that measures these effects relative to a current law 
baseline. If the recipient would prefer, the covered changes may also 
be reported based on actual values using a statistical methodology to 
isolate the change in year-over-year revenue attributable to the 
covered change(s), relative to the current law baseline prior to the 
change(s).\361\ Further, estimation approaches may not use dynamic 
methodologies that incorporate the projected effects of macroeconomic 
growth because macroeconomic growth is accounted for separately in the 
framework.
---------------------------------------------------------------------------

    \361\ By permitting recipient governments to use actual or 
estimated values, the interim final rule and final rule provide 
flexibility to recipients and thus minimizes burden.
---------------------------------------------------------------------------

Estimation
    Public Comment: A number of commenters expressed concern that 
estimating the value of covered changes required a number of 
assumptions and that the actual effects of covered changes on tax 
revenue would be difficult to predict. Several commenters expressed 
support for the interim final rule's approach to dynamic scoring 
methodologies, and one commenter argued that the final rule should 
prohibit the use of prior cash balances in calculations of permissible 
tax cuts.
    Treasury Response: Treasury recognizes that estimating the effects 
of covered changes requires assumptions and that many other factors 
influence the amount of tax revenue received. The interim final rule 
addresses these concerns in several ways. First, in general and where 
possible, reporting should be produced by the agency of the recipient 
government responsible for estimating the costs and effects of fiscal 
policy changes. This approach offers recipient governments the 
flexibility to determine their reporting methodology based on their 
existing budget scoring practices and capabilities. In addition, by 
relying on scoring methodologies that do not incorporate projected 
effects of macroeconomic growth, the estimation of the value of covered 
changes relies on fewer assumptions and thus provide greater 
consistency among states and territories. Finally, as discussed below, 
the interim final rule includes a de minimis threshold, below which the 
sum of covered changes will be deemed not to have any revenue-reducing 
effects.
Timing of the Impact of Covered Changes
    Public Comment: Several commenters expressed concern that recipient 
governments, to evade the offset provision, may backload the costs of 
certain covered changes outside of the covered period, and advocated 
that covered changes be instead evaluated as the net present value in 
the year that the covered change is enacted. These commenters argued 
that some tax cuts could have effects on tax revenue for many decades 
or could be structured to take effect after the end of the covered 
period.
    Treasury Response: As discussed in section Timeline for Use of 
SLFRF Funds, SLFRF funds must be used to cover costs incurred prior to 
December 31, 2024. Accordingly, SLFRF funds

[[Page 4427]]

generally would not be able to offset a reduction in net tax revenue 
occurring after December 31, 2024.
    For these reasons, Treasury is maintaining this element of the 
interim final rule without change.
    (2) In excess of the de minimis. Under the framework established in 
the interim final rule, after establishing that a covered change 
occurred, the recipient government next calculates the total value of 
all covered changes in the reporting year resulting in revenue 
reductions, identified in Step 1. If the total value of the revenue 
reductions resulting from these changes is below the de minimis level, 
the recipient government is deemed not to have any revenue-reducing 
changes for the purpose of determining the recognized net reduction. If 
the total is above the de minimis level, the recipient government must 
identify sources of in-year revenue to cover the full costs of changes 
that reduce tax revenue. Under the interim final rule, the de minimis 
level is calculated as 1 percent of the reporting year's baseline.
    Public Comment: Many commenters supported the inclusion of the de 
minimis, noting that the de minimis protects recipients from penalty 
resulting from minor or incidental changes, minimizes administrative 
burden, and enhances predictability of the application of the offset 
provision. Some commenters expressed concern that the fixed threshold 
could result in cliff effects.
    Treasury Response: A clear de minimis threshold supports recipient 
governments' compliance with the offset provision. A de minimis level 
recognizes the inherent challenges and uncertainties that recipient 
governments face, and thus allows relatively small reductions in tax 
revenue without consequence. In other words, states and territories may 
make many small changes to alter the composition of their tax revenues 
or implement other policies with marginal effects on tax revenues. They 
may also make changes based on projected revenue effects that turn out 
to differ from actual effects, unintentionally resulting in minor 
revenue changes that are not fairly described as ``resulting from'' tax 
law changes. However, a de minimis does not automatically result in 
consequences under the offset provision, since a recipient government 
could demonstrate that other, non-SLFRF funds to offset a net reduction 
in tax revenue. Accordingly, any cliff effects associated with a clear 
de minimis threshold are mitigated by other aspects of the framework.
    Public Comment: Commenters expressed a range of views regarding the 
amount of the de minimis. Some commenters argued that the de minimis 
was too generous, noting that the choice of 1 percent could, in some 
cases, permit reductions in net tax revenue of hundreds of millions of 
dollars. These commenters advocated that the de minimis be lowered 
(e.g., to 25 basis points) or be tied to a fixed amount. Other 
commenters argued that the choice of de minimis was not well supported 
by the statute, advocated for a larger de minimis and suggested that 
the amount be tied to the recipient government's total expenditures in 
the prior fiscal year.
    Treasury Response: Treasury adopted a de minimis threshold as an 
administrative accommodation for the reasons discussed above. As 
discussed in the interim final rule, Treasury determined that the 1 
percent de minimis level reflects the historical reductions in revenue 
due to minor changes in state fiscal policies and was determined by 
assessing the historical effects of state-level tax policy changes in 
state EITCs implemented to effect policy goals other than reducing net 
tax revenues.\362\
---------------------------------------------------------------------------

    \362\ Data provided by the Urban-Brookings Tax Policy Center for 
state-level EITC changes for 2004-2017.
---------------------------------------------------------------------------

    For these reasons, Treasury is adopting the 1 percent de minimis 
without change.
    (3) Safe harbor. Next, under the interim final rule, if the revenue 
reduction caused by the covered changes exceeds the 1 percent de 
minimis threshold, the recipient government compares the reporting 
year's actual tax revenue to the baseline. If actual tax revenue is 
greater than the baseline, Treasury will deem the recipient government 
not to have any recognized net reduction for the reporting year, and 
therefore to be in a safe harbor and outside the ambit of the offset 
provision. This approach is consistent with the ARPA, which 
contemplates recoupment of SLFRF funds only in the event that such 
funds are used to offset a reduction in net tax revenue. If net tax 
revenue has not been reduced, the offset provision does not apply. In 
the event that actual tax revenue is above the baseline, the organic 
revenue growth that has occurred, plus any other revenue-raising 
changes, by definition must have been enough to offset the in-year 
costs of any covered changes. One commenter argued that the offset for 
organic growth be adjusted to reflect population growth. To minimize 
administrative burden, and for the reasons discussed above, Treasury is 
maintaining the measurement of actual tax revenue without adjustment 
for population growth.
    (4) Consideration of other sources of funding. The recipient 
government will then identify and calculate the total value of changes 
that could pay for revenue reduction due to covered changes and sum 
these items. This amount can be used to pay for up to the total value 
of revenue-reducing changes in the reporting year. These changes 
consist of two categories:
    (a) Tax and other increases in revenue. The recipient government 
must identify and consider covered changes in policy that the recipient 
government predicts will have the effect of increasing general revenue 
in a given reporting year. Recipient governments should use the same 
approach to identify and value covered changes that increase tax 
revenue as applied to covered changes that reduce tax revenue. For the 
reasons discussed above, Treasury is adopting these aspects of 
identifying and valuing covered changes without change.
    (b) Covered spending cuts. A recipient government also may cut 
spending in certain areas to pay for covered changes that reduce tax 
revenue, up to the amount of the recipient government's net reduction 
in total spending as described below. These changes must be reductions 
in government outlays in an area where the recipient government has not 
spent SLFRF funds. To better align with existing reporting and 
accounting, the interim final rule considers the department, agency, or 
authority from which spending has been cut and whether the recipient 
government has spent SLFRF funds on that same department, agency, or 
authority. If the recipient government has not spent SLFRF funds in a 
department, agency, or authority, the full amount of the reduction in 
spending counts as a covered spending cut, up to the recipient 
government's net reduction in total spending. If they have spent SLFRF 
funds in such department, agency, or authority, the SLFRF funds 
generally would be deemed to have replaced the amount of spending cut 
and only reductions in spending above the amount of SLFRF funds spent 
on the department, agency, or authority would count. This approach--
allowing only spending reductions in areas where the recipient 
government has not spent SLFRF funds to be used as an offset for a 
reduction in net tax revenue--aims to prevent recipient governments 
from using SLFRF funds to supplant state or territory funding in the 
eligible use

[[Page 4428]]

areas, and then using those state or territory funds to offset tax 
cuts. Such an approach helps ensure that SLFRF funds are not used to 
``indirectly'' offset revenue reductions due to covered changes.
Department, Agency, or Authority
    Public Comment: Several commenters supported the interim final 
rule's approach to considering spending cuts at the department, agency, 
or authority level, on the basis that this approach is supported by the 
statutory language prohibiting SLFRF funds from being used to 
``directly or indirectly'' offset a reduction in net tax revenue. On 
the other hand, some commenters argued that the methodology for 
identifying offsetting spending cuts was too restrictive; specifically, 
that measurement at the agency or department-level may not adequately 
account for the size and various programs that could occur in one 
agency or department. One commenter argued that recipient governments 
should instead be permitted to consider spending cuts on a more 
granular sub-unit of a department but noted that this additional 
flexibility would come at the cost of transparency and clarity.
    Treasury Comment: Treasury recognizes that some recipients may vary 
in their budgeting processes, with some budgeting on a department level 
and others budgeting at more or less granular sub-units of government. 
Relying on spending at a department, agency, or authority level allows 
recipient governments to report how SLFRF funds have been spent using 
reporting units already incorporated into their budgeting process.
Spending Cuts Baseline
    Under the interim final rule, to calculate the amount of spending 
cuts that are available to offset a reduction in tax revenue, the 
recipient government must first consider whether there has been a 
reduction in total net spending, excluding SLFRF funds (net reduction 
in total spending). This approach ensures that reported spending cuts 
actually create fiscal space, rather than simply offset other spending 
increases. A net reduction in total spending is measured as the 
difference between total spending in each reporting year, excluding 
SLFRF funds spent, relative to total spending for the recipient's 
fiscal year ending in 2019, adjusted for inflation. Measuring 
reductions in spending relative to 2019 reflects the fact that the 
fiscal space created by a spending cut persists so long as spending 
remains below its original level, even if it does not decline further, 
relative to the same amount of revenue.
    Public Comment: Several commenters expressed concern regarding the 
measurement of spending cuts relative to the recipient's FY 2019, for 
example arguing that the choice did not take into account increases in 
spending in 2020. As one commenter noted, the fiscal year 2020 required 
extraordinary intervention by recipient governments and the ongoing 
public health emergency continues to require extraordinary 
intervention.
    Treasury Response: FY 2019 provides a reasonable and relatively 
generous baseline for considering spending because it is the last full 
fiscal year prior to the COVID-19 public health emergency and 
governments' extraordinary efforts to address the impact of the 
pandemic. This approach also aligns with the FY 2019 baseline for 
measuring revenue loss. Measuring spending cuts from year to year 
would, by contrast, not recognize any available funds to offset revenue 
reductions unless spending continued to decline, failing to reflect the 
actual availability of funds created by a persistent change and 
limiting the discretion of states and territories.
    For the reasons discussed above, Treasury is adopting the approach 
taken in the interim final rule without change.
    (5) Identification of amounts subject to recoupment. If a recipient 
government (i) reports covered changes that reduce tax revenue (Step 
1); (ii) to a degree greater than the de minimis (Step 2); (iii) has 
experienced a reduction in net tax revenue (Step 3); and (iv) lacks 
sufficient revenue from other, permissible sources to pay for the 
entirety of the reduction (Step 4), then the recipient government will 
be considered to have used SLFRF funds to offset a reduction in net tax 
revenue, up to the amount that revenue has actually declined. That is, 
the maximum value of the reduction revenue due to covered changes that 
a recipient government must cover is capped at the difference between 
the baseline and actual tax revenue.\363\ In the event that the 
baseline is above actual tax revenue but the difference between them is 
less than the sum of revenue reducing changes that are not paid for 
with other, permissible sources, organic revenue growth has implicitly 
offset a portion of the reduction. The revenue reduction cap implements 
this approach for permitting organic revenue growth to cover the cost 
of tax cuts.
---------------------------------------------------------------------------

    \363\ This cap is applied in section 35.8(c) of the final rule, 
calculating the amount of funds used in violation of the tax offset 
provision.
---------------------------------------------------------------------------

    Finally, a recipient government may request reconsideration of any 
amounts identified in a notice from Treasury as subject to recoupment 
under this framework. Comments and responses to the recoupment process 
are discussed in section Remediation and Recoupment of this 
Supplemental Information.
3. Reporting
    To facilitate the implementation of the framework above, and in 
addition to reporting required on eligible uses, recipient governments 
are required to report certain information. The interim final rule 
indicated that Treasury would provide additional guidance at a later 
date and that, on an annual basis, it expected each recipient 
government would be required to provide the following information:
    <bullet> Actual net tax revenue for the reporting year;
    <bullet> Each revenue-reducing change made to date during the 
covered period and the in-year value of each change;
    <bullet> Each revenue-raising change made to date during the 
covered period and the in-year value of each change; and
    <bullet> Each covered spending cut made to date during the covered 
period, the in-year value of each cut, and documentation demonstrating 
that each spending cut is covered as prescribed under the interim final 
rule.
    Since the adoption of the interim final rule, Treasury has provided 
guidance on reporting regarding eligible uses and has required 
recipient governments to indicate whether they have made covered 
changes and the value of such changes.\364\
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    \364\ See Reporting Guidance, Section C.11, available at https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.
---------------------------------------------------------------------------

Reporting Burden
    Public Comment: Some commenters argued that the framework for 
identifying and reporting impermissible offsets was burdensome and that 
the burdens should be accounted for under Executive Order 13132 
(Federalism, August 4, 1999).
    Treasury Response: Taking into consideration comments received 
regarding burden, Treasury is considering a tiered approach to 
reporting on the offset provision. Specifically, under this approach, a 
recipient would only be required to report information to the extent 
needed to determine whether SLFRF funds had been used to offset a 
reduction in net tax revenue. For example, a recipient government would 
be required to report

[[Page 4429]]

information regarding permissible offsets only if it had also reported 
covered changes that were in excess of the de minimis and had reported 
a net reduction in tax revenue. Treasury will provide additional 
guidance and instructions on the reporting requirements at a later 
date.
    As discussed in section Regulatory Analyses of this Supplemental 
Information, Treasury maintains that the final rule does not have 
federalism implications within the meaning of Executive Order 13132 
(Federalism, August 4, 1999). In the ARPA, Congress requires states and 
territories to repay the Secretary for amounts used in violation of the 
prohibition on using SLFRF funds to offset reductions in net tax 
revenue, and it authorizes the Secretary to issue regulations to carry 
out this limitation and other requirements of the statute. Section 6(b) 
of Executive Order 13132 contemplates that certain regulations will be 
required by statute, as is the case with the interim final rule and the 
final rule, in which case section 6(b)(2)(B)'s requirement to include a 
federalism summary impact statement in the Supplementary Information to 
the regulation does not apply. Notwithstanding the above, Treasury has 
engaged in efforts to consult and work cooperatively with affected 
state, local, and Tribal government officials and associations in the 
process of developing the interim final rule.
Reporting Transparency
    Public Comment: Several commenters argued that information 
supporting the net tax offset calculation should be publicly available. 
Some of these commenters requested that reporting be made available in 
a machine-readable format, and others advocated that recipient 
governments disclose this information on their local budget agency's 
website. These commenters argued that making information regarding tax 
changes publicly available would increase transparency and 
accountability. Further, several commenters suggested that Treasury 
provide a mechanism for citizens to register their concerns about 
particular tax actions.
    Treasury Response: As discussed in other sections, reporting 
requirements promote transparency and accountability for the general 
public and constituents of recipient governments to understand how 
state, local, and Tribal governments have used SLFRF funds. Since the 
publication of the interim final rule, Treasury issued supplementary 
reporting guidance in the Compliance and Reporting Guidance and in the 
User Guide: Treasury's Portal for Recipient Reporting (User Guide), 
which addresses the particular content and form of required reporting. 
Treasury will continue to issue updated guidance prior to each 
reporting period clarifying any modifications to requested report 
content and will continue to consider how reporting can best support 
transparency and accountability while minimizing recipient 
administrative burden. Further, as discussed in the section Remediation 
and Recoupment, Treasury may address potential violations of this final 
rule based on both information submitted from recipients, either 
through quarterly reports or self-reporting, and from other sources of 
information (e.g., information submitted from the public).
2. Deposit Into Pension Funds
    Background: Subsection 602(c)(2)(B) of the Social Security Act 
provides that ``[n]o State or territory may use funds made available 
under this section for deposit into any pension fund.'' Similarly, 
subsection 603(c)(2) of the Social Security Act provides that ``[n]o 
metropolitan city, nonentitlement unit of local government, or county 
may use funds made available under this section for deposit into any 
pension fund.''
    For purposes of this restriction on pension deposits, the interim 
final rule defined deposit to mean ``an extraordinary payment of an 
accrued, unfunded liability.'' The interim final rule also specified 
that a deposit does not include routine contributions made as part of a 
payroll obligation, such as the normal cost component of a pension 
contribution or the component that consists of amortization of unfunded 
liabilities calculated by reference to the employer's payroll costs. 
The interim final rule applied the restriction on pension deposits to 
all recipients.
    Public Comment: Several commenters observed that the statutory 
restriction on deposits into pension funds does not apply to Tribal 
governments.
    Treasury Response: In response, Treasury is clarifying in the final 
rule that the pension restriction does not apply to Tribal governments.
    Public Comment: Treasury also received a comment expressing concern 
that the interim final rule permitted recipients to make a larger than 
usual pension contribution, so long as the timing of that contribution 
aligns with the historical timing of contributions.
    Treasury Response: The interim final rule prohibited the use of 
SLFRF funds from the ARPA to make extraordinary payments, and the 
Supplementary Information to the interim final rule said that a payment 
would be an extraordinary payment if it reduces a liability incurred 
prior to the start of the COVID-19 public health emergency and occurs 
outside the recipient's regular timing for making the payment. At the 
same time, however, as suggested by the comment Treasury received, a 
payment made at the regular time for pension contributions may very 
well be an extraordinary payment, for example, if it is larger than a 
regular payment would have been. Such a payment would be a restricted 
use.
    Public Comment: Other commenters asked which pension contributions 
are permitted.
    Treasury Response: To be an eligible use of SLFRF funds, a use must 
(1) be eligible under one of the eligible use categories and (2) not 
contravene any of the applicable restrictions on uses of funds. Some 
pension contributions may be eligible because they both fit within an 
eligible use category and do not contravene the restriction on deposits 
into pension funds (i.e., they are not an extraordinary payment of an 
accrued, unfunded liability). For example, payroll and covered benefits 
for public health and safety staff responding to COVID-19 are an 
eligible use of funds to respond to the public health and negative 
economic impacts of the pandemic; routine pension contributions as part 
of an employee's regular covered benefits are permissible under that 
eligible use category.

B. Other Restrictions on Use of Funds

1. Debt Service and Replenishing Financial Reserves
    The Supplementary Information to the interim final rule provided 
that debt service is not an eligible use of funds either to respond to 
the public health emergency or its negative economic impacts or as a 
provision of government services to the extent of revenue loss.\365\ 
The interim final rule also provided that replenishing financial 
reserves (e.g., rainy day funds) is not an eligible use of funds either 
to respond to the public health emergency or its negative economic 
impacts or as a provision of

[[Page 4430]]

government services to the extent of revenue loss.\366\
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    \365\ ``[G]overnment services would not include interest or 
principal on any outstanding debt instrument, including, for 
example, short-term revenue or tax anticipation notes, or fees or 
issuance costs associated with the issuance of new debt. For the 
same reasons, government services would not include satisfaction of 
any obligation arising under or pursuant to a settlement agreement, 
judgment, consent decree, or judicially confirmed debt restructuring 
in a judicial, administrative, or regulatory proceeding, except if 
the judgment or settlement required the provision of government 
services.'' 86 FR 26796-97 (May 17, 2021).
    \366\ ``In addition, replenishing financial reserves (e.g., 
rainy day or other reserve funds) would not be considered provision 
of a government service, since such expenses do not directly relate 
to the provision of government services.''
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    As explained in greater detail below, Treasury, in the final rule, 
has retained these restrictions and is clarifying that these 
restrictions on the use of SLFRF funds apply to all eligible use 
categories.
Public Comments
    Several commenters suggested that debt service and reserve 
replenishment should qualify as the provision of a government service 
and be an eligible use of funds, up to the amount of revenue loss due 
to the pandemic. Many commenters indicated that they had been forced to 
borrow money or dip into reserve funds to continue providing government 
services during the public health emergency and that using SLFRF funds 
for resulting debt service or reserve replenishment costs should 
therefore be considered a government service.
    Many comments from Tribal governments noted that their governments 
depend on revenue from Tribal enterprises to pay government debts and 
provide services. The comments suggest that it should be an eligible 
use of SLFRF to replace lost revenue from these enterprises that would 
typically be used to pay debt service costs. Other commenters argued 
that paying the interest or principal on debt should in some cases be 
considered provision of government services and an eligible use of 
funds as such expenditures facilitate the provision of government 
services.
    Some commenters argued that debt costs or reserve drawdowns during 
the public health emergency constitute a negative economic impact to 
recipient governments, and thus debt service or reserve replenishment 
should be an eligible use to respond to that negative economic impact. 
For example, several commenters suggested that there should be a 
specific carve-out allowing the use of SLFRF funds for debt service on 
debt incurred for government services after January 27, 2020, the start 
of the public health emergency, or short-term debt incurred for this 
purpose. Others suggested that recipient governments should be able to 
service debt, up to the amount of debt incurred in direct response to 
the pandemic. These commenters generally reasoned that the cost of 
responding to the public health emergency and its negative economic 
impacts prior to APRA's passage constitutes a negative economic impact 
of the pandemic.
    Some commenters argued that the specific impacts of the pandemic on 
the travel, tourism, and hospitality sector had affected their ability 
to meet debt service costs. For example, some commenters explained that 
specific tax streams (e.g., hotel room taxes) or revenue sources (e.g., 
hospitality generally) are tied to specific debt instruments and that 
these revenue sources had declined during the public health emergency; 
commenters argued that this constitutes a negative economic impact that 
SLFRF funds should be permitted to address.
    Finally, some commenters questioned why servicing debt incurred 
after March 3, 2021 for an otherwise eligible project (e.g., a 
broadband infrastructure project) would not be an eligible use of 
funds.
    On the other hand, many commenters expressed support for the 
interim final rule's prohibition on use of funds for debt service and 
reserve replenishment. These commenters largely argued that SLFRF funds 
should be used to provide current services to communities in response 
to the public health emergency and that use of funds for debt service 
or reserve replenishment represented, respectively, payment for past 
costs or savings for potential future costs. In addition to the 
prohibition on debt service and reserve replenishment, some commentors 
suggested that the final rule should also prevent funds from being used 
for state UI trust fund replenishment or for paying off debt owed 
through UI trust funds. One commenter argued that Treasury should 
further restrict recipient governments, for example by preventing 
recipients from making cuts to an allowable budget item, filling the 
budget gap with SLFRF funds, and then using the savings from the 
initial cut for debt service or reserve replenishment.
Treasury Response
    The final rule maintains the restriction on the use of funds for 
debt service or reserve replenishment for the reasons described below 
and clarifies that this restriction applies to all eligible use 
categories.
    First, debt service and reserve replenishment costs do not 
constitute the provision of services to constituents. As noted in the 
interim final rule, financing expenses--such as issuance of debt or 
payment of debt service--do not provide services or aid to citizens. 
Similarly, contributions to rainy day funds and similar financial 
reserves constitute savings for future spending needs. As such, these 
expenses do not respond to the current and ongoing public health and 
negative economic impacts of the pandemic, nor do they provide a 
government service.
    Second, payments from the SLFRF are intended to be used 
prospectively (see section Timeline for Use of SLFRF Funds). The 
interim final rule provided that funds may be used for costs incurred 
beginning on March 3, 2021, which Treasury has maintained in the final 
rule. Use of funds for debt service on indebtedness issued prior to 
March 3, 2021 necessarily entails using funds for costs incurred during 
prior time periods, rather than the present response to the public 
health emergency and its negative economic impacts or to provide 
government services.
    Third, SLFRF funds provide recipients with substantial latitude to 
use funds to support the diverse needs in their communities. With SLFRF 
resources available, recipients have less need to incur debt for 
otherwise-eligible SLFRF uses.
    Finally, given the strong performance of overall revenues and low 
municipal bond yields, state and local governments generally do not 
face high levels of fiscal stress. Limits on debt service or 
replenishment of reserves would not have a substantial impact on 
recipients' ability to provide services. The ratio of state and local 
debt-to-GDP, which spiked briefly during the pandemic, has recovered to 
its pre-pandemic level and remains well below levels seen during the 
Great Recession.\367\
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    \367\ Table Z.1 of the Financial Accounts of the United States, 
Board of Governors of the Federal Reserve System, and Table 1.1.5 of 
National Income and Product Accounts, Bureau of Economic Analysis.
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2. Settlements and Judgments
    The interim final rule also provided that satisfaction of any 
obligation arising under or pursuant to a settlement agreement, 
judgment, consent decree, or judicially confirmed debt restructuring in 
a judicial, administrative, or regulatory proceeding would not be an 
eligible use of funds to respond to the public health and negative 
economic impacts of the pandemic or as a government service provided 
under the revenue loss eligible use category. However, if the judgment 
or settlement requires the recipient to provide services that are 
otherwise eligible under an SLFRF eligible use category, specifically 
if the settlement or judgment requires the recipient to provide 
services to respond to the COVID-19 public health emergency or its 
negative economic impacts or to provide government services, then those 
costs are eligible uses of SLFRF funds.

[[Page 4431]]

In other words, satisfaction of a settlement or judgment itself is not 
itself an eligible use of funds, unless the settlement requires the 
recipient to provide services or incur other costs that are eligible 
uses of SLFRF funds.
    In the final rule, Treasury is maintaining the interim final rule 
approach and clarifying that it applies to all eligible use categories 
and any use of funds under the SLFRF program.
3. General Restrictions
    In addition to the above restrictions, there are three general 
restrictions that apply to SLFRF funds. These restrictions, which 
reflect existing laws and regulations, the Award Terms and Conditions, 
and application of the ARPA statute, applied under the interim final 
rule, and they continue to apply under the final rule.
    A primary purpose of the SLFRF in the ARPA is to support efforts to 
stop the spread of COVID-19.\368\ As discussed above, recipients of 
SLFRF funds are required to comply with the Award Terms and Conditions 
established for the use of such funds. The interim final rule and final 
rule implement this objective by, in part, providing that recipients 
may use SLFRF funds for COVID-19 mitigation and prevention.\369\ See 
section Public Health in Public Health and Negative Economic Impacts.
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    \368\ See Sec. 602(a)(1); 603(a)(1); 602(c)(1); 603(c)(1).
    \369\ See 35.6(b); Coronavirus State and Local Fiscal Recovery 
Funds, 86 FR at 26786.
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    The CDC has provided recommendations and guidelines to help 
mitigate and prevent COVID-19 and has identified vaccines and masks as 
two of the best tools to prevent the spread of COVID-19. The interim 
final rule and final rule help support recipients in stopping the 
spread of COVID-19 through these recommendations and guidelines. 
Consistent with the purpose of the ARPA and as implemented through the 
interim final rule and final rule, a recipient may not use SLFRF funds 
for a program, service, or capital expenditure that includes a term or 
condition that undermines efforts to stop the spread of COVID-19. A 
program or service that imposes conditions on participation or 
acceptance of the service that would undermine efforts to stop the 
spread of COVID-19 or discourage compliance with recommendations and 
guidelines in CDC guidance for stopping the spread of COVID-19 is not a 
permissible use of SLFRF funds.
    In other words, recipients may not use funds for a program that 
undermines practices included in the CDC's guidelines and 
recommendations for stopping the spread of COVID-19. This includes 
programs that impose a condition to discourage compliance with 
practices in line with CDC guidance (e.g., paying off fines to 
businesses incurred for violation of COVID-19 vaccination or safety 
requirements), as well as programs that require households, businesses, 
nonprofits, or other entities not to use practices in line with CDC 
guidance as a condition of receiving funds (e.g., requiring that 
businesses abstain from requiring mask use or employee vaccination as a 
condition of receiving SLFRF funds).
    Second, a recipient may not use SLFRF funds in violation of the 
conflict of interest requirements contained in the Award Terms and 
Conditions or the Office of Management and Budget's Uniform Guidance, 
including any self-dealing or violation of ethics rules. Recipients are 
required to establish policies and procedures to manage potential 
conflicts of interest.\370\ Treasury may provide further guidance on 
the types of activities or conflicts that the recipient's policies and 
procedures must cover.
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    \370\ Specifically, the Award Terms and Conditions provide that 
``[r]ecipient understands and agrees it must maintain a conflict of 
interest policy consistent with 2 CFR 200.318(c), and that such 
conflict-of-interest policy is applicable to each activity funded 
under this award. Recipients and subrecipients must disclose in 
writing to Treasury or the pass-through agency, as appropriate, any 
potential conflict of interest affecting the awarded funds in 
accordance with 2 CFR 200.112.''
---------------------------------------------------------------------------

    Lastly, recipients should also be cognizant that federal, state, 
and local laws and regulations, outside of SLFRF program requirements, 
may apply. Recipients may not use revenue loss funds, for instance, to 
violate other background laws that limit the scope of activities that 
may be conducted as ``government services,'' including other state and 
federal laws. State and local procurement, contracting, and conflicts-
of-interest laws and regulations may include applicable requirements, 
including, for example, required procurement processes for contractor 
selection or competitive price setting. Furthermore, recipients are 
also required to comply with other federal, state, and local background 
laws, including environmental laws \371\ and federal civil rights and 
nondiscrimination requirements, which include prohibitions on 
discrimination on the basis of race, color, national origin, sex, 
(including sexual orientation and gender identity), religion, 
disability, or age, or familial status (having children under the age 
of 18).
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    \371\ An exception is statutes that do not apply unless 
explicitly stated, including, e.g., the National Environmental 
Policy Act and the Davis-Bacon Act.
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IV. Program Administration Provisions

    The interim final rule included several sections that described the 
processes and requirements for administering the program on an ongoing 
basis, specifically: Distribution of funds, transfer of funds, use of 
funds for program administration, reporting on the use of funds, and 
remediation and recoupment of funds used for ineligible purposes.
    To enhance clarity, this Supplementary Information for the final 
rule organizes these issues into one section on Program Administration 
Provisions. Recipients should also consult Treasury's Compliance and 
Reporting Guidance for additional information on program administration 
processes and requirements, including the applicability of the Uniform 
Guidance.

A. Payments in Tranches to Local Governments and Certain States

    Section 602(b)(6)(A)(ii) of the Social Security Act authorizes the 
Secretary to withhold payment of up to 50 percent of the amount 
allocated to each state and territory for a period of up to 12 months 
from the date on which the state or territory provides its statutorily-
required certification to the Secretary. The Social Security Act 
requires any such withholding be based on the unemployment rate in the 
state or territory as of the date of the certification.
    Under the interim final rule, Treasury provided that it would 
withhold 50 percent of the amount allocated from any state that had an 
unemployment rate less than two percentage points above its 
unemployment rate in February 2020 as of the date the state submitted 
its initial certification for payment of funds pursuant to section 
602(d)(1) of the Social Security Act. Based on data available at the 
time of the issuance of the interim final rule, this threshold was 
expected to result in a majority of states being paid in two tranches. 
Treasury did not split the payments of any territories.
    Public Comment: One commenter asked Treasury to allow a state to 
request release of the portion of the state's second tranche payment 
after the state could demonstrate that it had allocated the entirety of 
the first tranche, a need to continue ongoing programs, and a desire to 
avoid borrowing costs. Another commenter asked Treasury to clarify 
whether states that received half their funding in the

[[Page 4432]]

first payment would receive their second half payment within 12 months. 
Similarly, some recipients requested clarification on whether they 
could obligate second tranche funds before receipt or use second 
tranche funds for costs incurred prior to receipt.
    Treasury Response: The final rule maintains the approach in the 
interim final rule with two modifications. As described in the interim 
final rule, splitting payments for most states provides consistency 
with payments to local governments and encourages states to adapt their 
use of funds to developments that arise in the course of the economic 
recovery. Moreover, SLFRF funds may be used for costs incurred during 
the period of performance. Recipients may use their jurisdiction's 
budgeting and procurement practices and laws to determine how and when 
second tranche funds may be obligated.
    The final rule makes two adjustments for operational purposes. 
First, the final rule provides that Treasury expects to make all second 
tranche payments to states available beginning 12 months from the date 
that funding was first made available by Treasury (May 10, 2021) 
regardless of when each individual state submitted its initial 
certification. This should increase clarity and consistency on the 
timing of second tranche payments for both states and Treasury. Second, 
also to ease recipient states' administrative burden, the final rule 
strikes a requirement from the interim final rule that states must 
certify for their second tranche payments and file all required reports 
at least 30 days prior to the date on which their second payment is 
made available. The final rule simply requires that states certify for 
their second tranche payment and file all required reports before 
receiving their second tranche payment, with no 30 day wait period 
required.

B. Payments to Nonentitlement Units of Local Government (NEUs) and 
Units of Local Government (UGLGs) Within Non-UGLG Counties

    The interim final rule established requirements related to 
distributions of SLFRF funds by states and territories to NEUs and 
UGLGs within non-UGLG counties. Specifically, the interim final rule 
provided that the total distribution to an NEU cannot exceed 75 percent 
of the most recent budget for the NEU (the 75 percent budget cap); a 
requirement set forth in section 603(b)(2)(C)(iii) of the Social 
Security Act. The interim final rule Supplementary Information defined 
the NEU's budget for purposes of calculating the 75 percent budget cap 
as the NEU's ``most recent annual total operating budget, including its 
general fund and other funds, as of January 27, 2020.'' The interim 
final rule further provided that states and territories must permit 
NEUs without formal budgets as of January 27, 2020 to self-certify 
their most recent annual expenditures as of January 27, 2020 for the 
purpose of calculating the 75 percent budget cap. Further, the interim 
final rule prohibited states and territories from placing additional 
conditions or requirements on distributions to NEUs beyond those 
required by the statute, the interim final rule, or Treasury's guidance 
and from offsetting any debt owed by such NEUs against such 
distributions.
    Commenters predominantly focused on the definition of an NEU's 
budget for purposes of calculating the 75 percent budget cap, NEU 
allocations and eligibility, and the prohibition on states and 
territories imposing additional conditions or requirements in the NEU 
distribution process.
Definition of NEU Budget
    Public Comment: Commenters suggested that Treasury provide greater 
clarification on the definition of an NEU's ``most recent budget'' for 
purposes of the 75 percent budget cap calculation. Treasury provided 
updated guidance on its interpretation of the 75 percent budget cap on 
June 30, 2021, and a commenter suggested that Treasury incorporate such 
updated interpretation into the Supplementary Information of the final 
rule.
    Treasury Response: Consistent with the Update on Interpretation for 
the 75 Percent Budget Cap Calculation published on June 30, 2021,\372\ 
the Supplementary Information of the final rule defines an NEU's budget 
for purposes of calculating the 75 percent budget cap as its total 
annual budget, including both operating and capital expenditure 
budgets, in effect as of January 27, 2020. The guidance also gives 
states and territories flexibility to provide further guidance to their 
NEUs to operationalize the 75 percent budget cap. Given the variance in 
local financial accounting, this updated definition will better 
facilitate states' and territories' distribution of SLFRF funds to 
NEUs.
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    \372\ Treasury's Update on Interpretation for the 75 Percent 
Budget Cap Calculation can be found at: https://home.treasury.gov/system/files/136/NEU-Update-75-Percent-Budget-Cap.pdf.
---------------------------------------------------------------------------

Allocations and Eligibility
    Public Comment: Many commenters provided feedback on specific 
allocation calculations and eligibility of local governments for NEU 
funding. Commenters addressed how a locality was classified as an NEU 
or metropolitan city, deviations between Treasury's allocation 
calculations and earlier estimates from other sources, treatment of 
unincorporated areas, sources for population data, and Treasury's 
allocation of NEU funding to states and territories based on the 
population of a state and territory outside of its metropolitan cities. 
Two commenters proposed that Treasury provide an appeal process for 
localities that were not identified on the List of Local Governments 
used by states and territories as part of the process in which a state 
or territory determines the eligibility of an NEU in accordance with 
Treasury guidance, or for Minor Civil Divisions (MCDs) that were denied 
funding as part of a facts-and-circumstances test undertaken by a weak-
MCD state.
    Treasury Response: Neither the interim final rule nor the final 
rule addresses eligibility or allocations issues, and comments on these 
topics are outside the scope of this rulemaking. These questions are 
addressed in other Treasury guidance, including the Guidance on 
Distribution of Funds to Non-entitlement Units of Local Government and 
Non-entitlement Unit of Local Government Definitional and Data 
Methodology guidance documents available on Treasury's website.\373\ 
Because Treasury interpreted the definition of an NEU \374\ in 
accordance with the statute and established an NEU distribution process 
in May 2021, the final rule does not incorporate an appeals process 
regarding the definitions or the facts-and-circumstances test used for 
eligibility determinations.
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    \373\ The Guidance on Distribution of Funds to Nonentitlement 
Units of Local Government can be found at this link: https://home.treasury.gov/system/files/136/NEU_Guidance.pdf. The 
Nonentitlement Unit of Local Government Definitional and Data 
Methodology can be found at this link: https://home.treasury.gov/system/files/136/NEU_Methodology.pdf.
    \374\ Treasury has interpreted NEU to generally include both 
incorporated places and MCDs with active functioning governments, 
subject to the state determining, in the case of weak-MCD States, 
that a weak MCD has the legal and operational capacity to accept 
SLFRF funds and provides a broad range of services that would 
constitute eligible uses under ARPA. More details can be found in 
the Nonentitlement Unit of Local Government Definitional and Data 
Methodology, available at https://home.treasury.gov/system/files/136/NEU_Methodology.pdf.
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Prohibition on Additional Conditions or Requirements in the NEU 
Distribution Process
    Public Comment: One commenter expressed support for Treasury's 
prohibition on states and territories

[[Page 4433]]

placing additional conditions or requirements on distributions to NEUs. 
This prohibition restricts states and territories from imposing 
limitations on NEUs' use of SLFRF funds based on an NEU's proposed 
spending plan or other policies, offsetting any debt owed by an NEU 
against the NEU's distribution, or providing funding on a reimbursement 
model. In particular, the commenter noted that a reimbursement model 
would lead to inequities in accessing SLFRF funds.
    Treasury Response: The final rule maintains and finalizes the 
prohibition on states and territories placing additional conditions or 
requirements on distributions to NEUs as well as to any UGLGs within 
counties that are non-UGLGs. Such conditions or requirements may 
contravene the statutory requirement that states and territories make 
distributions based on population and within the statutorily defined 
timeframe.
Other Provisions
    Treasury did not receive substantive comments on the requirement 
that states and territories permit NEUs without formal budgets as of 
January 27, 2020 to self-certify their most recent annual expenditures 
as of January 27, 2020 for the purpose of calculating the 75 percent 
budget cap, or Treasury's interpretation of the 75 percent budget cap 
applying only to a consolidated government's NEU allocation under 
section 603(b)(2) but not to a consolidated government's county 
allocation under section 603(b)(3). Further, Treasury did not receive 
substantive comments on the interim final rule's allowance that states 
and territories be able to use SLFRF funds under section 602(c)(1)(A) 
to fund expenses related to administering payments to NEUs and units of 
general local government. As such, the final rule maintains these 
provisions as written in the interim final rule without modification.
    Treasury received some comments that are not addressed because they 
are beyond the scope of the NEU provision of the interim final rule or 
not authorized by the statute, including comments related to state 
accounting practices, re-allocations of NEU allocations that exceed the 
75 percent budget cap, and concerns around eligible uses under SLFRF 
that small local governments may find particularly salient.

C. Timeline for Use of SLFRF Funds

    The interim final rule provided that ``[a] recipient may only use 
funds to cover costs incurred during the period beginning March 3, 2021 
and ending December 31, 2024.'' The interim final rule also provides 
that the period of performance will run until December 31, 2026, which 
will provide recipients an additional two years during which they may 
expend funds for costs incurred (i.e., obligated).
    As explained in more detail below, in the final rule Treasury is 
maintaining these time periods. Treasury will retain March 3, 2021 as 
the first date when costs may be incurred, to provide for forward-
looking or prospective use of funds and to align with the start date of 
the ``covered period'' as such term is used in section 602(c)(2)(A). 
The deadline for costs to be incurred--which the final rule clarifies 
means obligated--December 31, 2024, is specified in the ARPA statute, 
and Treasury will retain December 31, 2026 as the end of the period of 
performance to provide a reasonable amount of time for recipients to 
liquidate obligations incurred by the statutory deadline.
    Public Comments. Some commenters expressed concerns about costs 
incurred before March 3, 2021 not being covered and recommended the 
``start date'' be changed to January 2020 to coincide with the 
declaration of the public health emergency. These commenters argued 
that recipient governments began incurring costs to respond to COVID-19 
and its economic impacts in January 2020 and that prior federal fiscal 
relief, such as relief provided in the Coronavirus Aid, Relief, and 
Economic Security Act, did not fully compensate recipient governments 
for these costs. These commenters recommended that costs incurred 
before March 3, 2021 that otherwise fit within eligible use categories 
for SLFRF should be permissible uses of funds.
    Some commenters asked Treasury to clarify whether local governments 
are subject to the same covered period as states and territories 
beginning March 3, 2021. Commenters noted that section 603(g) of the 
Social Security Act does not contain the same definition of ``covered 
period'' as section 602(g)(1) of the Social Security Act, which 
references a statutory provision that only applies to states and 
territories.
    Many commenters requested that the deadline for costs to be 
incurred and the period of performance be extended due to the longer 
timeline for completing water and sewer projects. One commenter 
requested that recipients be able to split projects into different 
phases so that funds could be expended on larger, longer term projects 
(e.g., by obligating funds on one portion of the project by the 
statutory deadline). One commenter recommended that the period of 
performance be extended for at least two additional years beyond the 
expenditure deadline set forth in the interim final rule, i.e., until 
December 31, 2028. One commenter wrote that the final rule should allow 
for extended projects (e.g., over a time horizon of more than ten 
years) for recipients working to develop long-term water supplies to 
prepare for extreme drought.
    Treasury Response. In the final rule, Treasury is maintaining March 
3, 2021 as the date when recipients may begin to incur costs using 
SLFRF funds. As described in the interim final rule, use of SLFRF funds 
is forward looking and the eligible use categories provided by statute 
are all prospective in nature. While recipients may identify and 
respond to negative economic impacts that occurred during 2020, the 
costs incurred to respond to these impacts remain prospective. Further, 
Treasury considers the beginning of the covered period for purposes of 
determining compliance with section 602(c)(2)(A) to be a relevant 
reference point for this purpose that provides some flexibility for 
recipients that began incurring costs in the anticipation of enactment 
of the ARPA or in advance of the issuance of the interim final rule and 
receipt of payment.
    Finally, establishing an earlier start date would permit 
governments to use funds received in 2021 to satisfy obligations 
incurred in 2020. This use raises a substantial risk of SLFRF funds 
being used to supplant other recipient funds previously used to pay for 
such 2020 obligations, freeing funds for recipients to use for any 
purpose rather than eligible uses of SLFRF funds under the ARPA. 
Permitting such usage would undermine the provisions setting forth 
permissible and impermissible uses in the statute. Therefore, a reading 
of the statute permitting use of funds prior to March 3, 2021 would be 
inconsistent with the statutory structure.
    In the final rule, Treasury is also maintaining the deadlines by 
which funds must be obligated (i.e., December 31, 2024) and by which 
such obligations must be liquidated (i.e., December 31, 2026). The 
December 31, 2024 deadline by which eligible costs must be incurred is 
established by statute. Treasury is finalizing its interpretation of 
``incurred'' to be equivalent to the definition of ``obligation,'' 
based on the definition used for purposes of the Uniform Guidance. 
Treasury is also maintaining the period of performance, which will run 
through December 31, 2026, and provides the deadline by which 
recipients must expend obligated funds. Most recipients received SLFRF 
funds in the spring and summer of 2021,

[[Page 4434]]

meaning that they have over three years to obligate and over five years 
to expend funds. This provides a sufficient amount of time for 
recipients to plan and execute projects.

D. Transfers of Funds

    Under section 602(c)(3) of the Social Security Act, a state, 
territory, or Tribal government may transfer SLFRF funds to a ``private 
nonprofit organization . . . a Tribal organization . . . a public 
benefit corporation involved in the transportation of passengers or 
cargo, or a special-purpose unit of state or local government.'' 
Similarly, section 603(c)(3) authorizes a local government to transfer 
SLFRF funds to the same entities (other than Tribal organizations). 
Separately, section 603(c)(4) authorizes a local government to transfer 
SLFRF funds to the state in which it is located.
Entities Eligible for a Transfer Under Sections 602(c)(3) and 603(c)(3)
    Regarding transfers permitted under sections 602(c)(3) and 
603(c)(3) of the Act, the interim final rule Supplementary Information 
clarified that the lists of transferees in these sections are not 
exclusive and that state, local, territorial, and Tribal governments 
may transfer funds to other constituent units of government or private 
entities beyond those specified in the statute.
    Public Comment: Several commenters supported Treasury's 
interpretation of eligible transferees in sections 602(c)(3) and 
603(c)(3) as nonexclusive. However, many commenters asked for greater 
clarity as to whether specific entities not listed in Treasury's 
examples of eligible subrecipients, such as nonprofits and Tribal 
governments, were eligible transferees. One commenter also asked 
whether a recipient may transfer SLFRF funds to a higher level of 
government, such as a locality to the county in which it is located.
    Treasury Response: The final rule clarifies that, in addition to 
the entities enumerated in sections 602(c)(3) and 603(c)(3), recipients 
may transfer SLFRF funds to any entity to carry out as a subrecipient 
an eligible use of funds by the transferor, as long as they comply with 
the Award Terms and Conditions and other applicable requirements, 
including the Uniform Guidance at 2 CFR 200.331-200.333. Eligible 
subrecipients include, but are not limited to, other units of 
government (including Tribal governments), nonprofits and other civil 
society organizations, and private entities. Further, the final rule 
clarifies that transfers may be made to both constituent or non-
constituent units of government. For example, county A may transfer 
SLFRF funds to county B as long as county B abides by the use 
restrictions applicable to county A and the transfer would constitute 
an eligible use of the funds by county A. County A must receive a 
benefit proportionate to the amount transferred.
    As detailed in the interim final rule Supplementary Information, 
once transfers are received, the transferee must abide by the 
restrictions on use applicable to the transferor under the ARPA and 
other applicable law, regulations, and program guidance. Further, the 
transferor remains responsible for monitoring and overseeing the 
subrecipient's use of SLFRF funds and other activities related to the 
award to ensure that the subrecipient complies with the statutory and 
regulatory requirements and the Award Terms and Conditions. Recipients 
also remain responsible for reporting to Treasury on their 
subrecipients' use of payments from the SLFRF for the duration of the 
award.
Pooling Funds
    Public Comment: Several commenters asked for clarification about 
whether they may pool SLFRF funds for a project with other recipients, 
including when doing so involves a transfer to another entity, such as 
a regional organization or government that undertakes projects on 
behalf of a number of local governments. Commenters also asked for 
clarification on the oversight and reporting obligations that would 
result from such transfers.
    Treasury Response: Consistent with guidance issued following the 
interim final rule,\375\ the final rule clarifies that recipients may 
pool SLFRF funds for projects, provided that the project is itself an 
eligible use of SLFRF funds for each recipient that is contributing to 
the pool of funds and that recipients are able to track the use of 
funds in line with the reporting and compliance requirements of the 
SLFRF. In general, when pooling funds for regional projects, recipients 
may expend funds directly on the project or transfer funds to another 
government or other entity that is undertaking the project on behalf of 
multiple recipients. To the extent recipients undertake regional 
projects via transfer to another organization or government, recipients 
would need to comply with the rules on transfers specified in the final 
rule Supplementary Information. A recipient may transfer funds to a 
government outside its boundaries (e.g., county transfers to a 
neighboring county), provided that the transferor can document that the 
transfer constitutes an eligible expense of the transferor government 
and that its jurisdiction receives a benefit proportionate to the 
amount transferred.
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    \375\ Coronavirus State and Local Fiscal Recovery Funds, 
Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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Blending and Braiding of Funds
    Treasury is clarifying in the final rule that, consistent with 
further guidance issued by Treasury following the interim final 
rule,\376\ recipients may fund a project with both SLFRF funds and 
other sources of funding, provided that the costs are eligible costs 
under each source program and are compliant with all other related 
statutory and regulatory requirements and policies. The recipient must 
comply with applicable reporting requirements for all sources of funds 
supporting the SLFRF projects and with any requirements and 
restrictions on the use of funds from the supplemental funding sources 
and the SLFRF program. Specifically,
---------------------------------------------------------------------------

    \376\ See FAQ 4.10. Id.
---------------------------------------------------------------------------

    <bullet> All funds provided under the SLFRF program must be used 
for projects, investments, or services that are eligible under the 
SLFRF program. SLFRF funds may not be used to fund an activity that is 
not, in its entirety, an eligible use under the SLFRF program. For 
example:
    [cir] SLFRF funds may be used in conjunction with other sources of 
funds to make an investment in water infrastructure that is eligible 
under section 602 or 603 of the Social Security Act and the final rule.
    [cir] SLFRF funds could not be used to fund the entirety of a water 
infrastructure project that was partially, although not entirely, an 
eligible use under Treasury's final rule. However, the recipient could 
use SLFRF funds only for a smaller component project that does 
constitute an eligible use, while using other funds for the remaining 
portions of the larger planned water infrastructure project that do not 
constitute an eligible use. In this case, the ``project'' for SLFRF 
purposes under this program would be only the eligible use component of 
the larger project.
    <bullet> In addition, because SLFRF funds must be obligated by 
December 31, 2024, and recipients must expend all funds under the award 
no later than December 31, 2026, recipients must be able to, at a 
minimum, determine and report to Treasury on the amount of SLFRF funds 
obligated and expended and when such funds were obligated and expended.

[[Page 4435]]

Scope of a 603(c)(4) Transfer
    Unlike in the case of a transfer under sections 602(c)(3) or 
603(c)(3), the interim final rule Supplementary Information specified 
that transfers from a local government to the state under section 
603(c)(4) will result in a cancellation or termination of the award on 
the part of the transferor local government and a modification of the 
award to the transferee state.
    Public Comment: Two commenters suggested that Treasury expand 
section 603(c)(4) beyond transfers from localities to the state to 
include transfers from counties to their constituent local governments, 
which would incentivize counties to augment funds to address the needs 
of local governments. These commenters noted that counties are 
disincentivized to make transfers under section 603(c)(3), as is 
currently allowed, as such transfers would require that counties 
provide oversight and monitoring over its subrecipients.
    Treasury Response: Section 603(c)(4), by its terms, applies only to 
transfers from local governments to states. Accordingly, the final rule 
must maintain the interim final rule's limitation of section 603(c)(4) 
transfers as applicable only to transfers from local governments to 
states. Expansions of section 603(c)(4) transfer authority beyond 
transfers from local governments to states were not explicitly 
authorized by Congress. As such, transfers under section 603(c)(4) may 
only be made by local governments to the state in which they are 
located.
    Congress enumerated two separate transfer provisions for local 
governments--section 603(c)(3) and section 603(c)(4)--that use 
different language and were intended to operate differently. Section 
603(c)(4) contains prefatory language (``Notwithstanding paragraph 
(1)''--a reference to the eligible SLFRF uses) that section 603(c)(3) 
does not. In other words, section 603(c)(4) transfers are not required 
to constitute an eligible use of the funds from the perspective of the 
transferor local government, but section 603(c)(3) transfers are 
required to constitute an eligible use. A transfer to accomplish an 
eligible use fits within the recipient-subrecipient framework.
    Further, treating section 603(c)(3) transfers as leading to a 
cancellation of the award for the transferor local government would 
result in scenarios that are inconsistent with the statutory language. 
An award cancellation pursuant to a section 603(c)(3) transfer would 
result in either (1) non-governmental entities becoming award 
recipients under the program, which would contravene the purpose of 
SLFRF or (2) transfers to governmental and non-governmental entities 
being treated in a distinct and inconsistent manner. That is, section 
603(c)(3) transfers to governmental entities would lead to award 
cancellation but section 603(c)(3) transfers to non-governmental 
entities would lead to a recipient-subrecipient relationship. 
Therefore, in the final rule, Treasury maintains its distinct treatment 
of a section 603(c)(3) transfer and section 603(c)(4) transfer.
    The final rule clarifies that a transfer under section 603(c)(4) 
will result in a modification, termination, or cancellation of the 
award on the part of the transferor local government and a modification 
of the award to the transferee state or territory. As detailed in the 
Supplementary Information to the interim final rule, the transferor 
must provide notice of the transfer to Treasury in a format specified 
by Treasury. Until the local government provides such notice and 
Treasury provides confirmation of its acceptance of the notice, the 
local government will remain responsible for ensuring that the SLFRF 
award is being used in accordance with the Award Terms and Conditions, 
section 602 or 603 of the Social Security Act, the final rule, and 
program guidance including reporting on such uses of the award funds to 
Treasury.
    A state that receives a transfer from a local government under 
section 603(c)(4) will be bound, by statute, by all of the use 
restrictions set forth in section 602(c) with respect to the use of 
those SLFRF funds, including the prohibitions on use of such SLFRF 
funds to offset certain reductions in taxes or to make deposits into 
pension funds. The state will be responsible as the prime recipient for 
the use and reporting on any funds transferred under section 603(c)(4) 
by the local government. Such transferred funds will be subject to the 
Award Terms and Conditions previously accepted by the state in 
connection with its SLFRF award.
Subrecipient Transfers
    Public Comment: Commenters sought clarification as to how funds may 
be transferred from a recipient to another entity. For instance, one 
commenter requested that recipients be able to advance funds to 
subrecipients as opposed to reimbursing subrecipients for expenses 
incurred.
    Treasury Response: Treasury did not specify in the interim final 
rule whether recipients may advance funds to subrecipients. This 
omission was not intended to prevent recipients from advancing funds to 
subrecipients, consistent with the various methods permitted under the 
Uniform Guidance. Given the broad flexibility that recipients have in 
selecting eligible uses and the broad variety of potential 
subrecipients, Treasury believes that specifying a single method of 
advancement or reimbursement would add unnecessary administrative 
difficulty to program administration. Recipients may determine the 
optimal payment structure for the transfer of funds (e.g., advance 
payments, reimbursement basis, etc.) from recipients to subrecipients. 
Ultimately, recipients must comply with the eligible use requirements 
and any other applicable laws or requirements and are responsible for 
the actions of their subrecipients.

E. Administrative Expenses

    The interim final rule permitted, under the heading ``[e]xpenses to 
improve efficacy of public health or economic relief programs,'' use of 
funds for ``[a]dministrative costs associated with the recipient's 
COVID-19 public health emergency assistance programs, including 
services responding to the COVID-19 public health emergency or its 
negative economic impacts, that are not federally funded.''
    Following release of the interim final rule, Treasury issued 
Compliance and Reporting Guidance that provided that ``recipients may 
use funds for administering the SLFRF program, including costs of 
consultants to support effective management and oversight, including 
consultation for ensuring compliance with legal, regulatory, and other 
requirements. Further, costs must be reasonable and allocable as 
outlined in 2 CFR 200.404 and 2 CFR 200.405. Pursuant to the SLFRF 
Award Terms and Conditions, recipients are permitted to charge both 
direct and indirect costs to their SLFRF award as administrative costs. 
Direct costs are those that are identified specifically as costs of 
implementing the SLFRF program objectives, such as contract support, 
materials, and supplies for a project. Indirect costs are general 
overhead costs of an organization where a portion of such costs are 
[sic] allocable to the SLFRF award such as the cost of facilities or 
administrative functions like a director's office.'' \377\ Several 
commenters

[[Page 4436]]

requested clarity on which administrative expenses are permissible uses 
of funds and how recipients should structure administrative costs.
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    \377\ U.S. Department of the Treasury, Recipient Compliance and 
Reporting Responsibilities, as of November 5, 2021; https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/recipient-compliance-and-reporting-responsibilities.
---------------------------------------------------------------------------

    In the final rule, Treasury is clarifying that direct and indirect 
administrative expenses are permissible uses of SLFRF funds and are a 
separate eligible use category from ``[e]xpenses to improve efficacy of 
public health or economic relief programs,'' which refers to efforts to 
improve the effectiveness of public health and economic programs 
through use of data, evidence, and targeted consumer outreach. For 
details on permissible direct and indirect administrative costs, 
recipients should refer to Treasury's Compliance and Reporting 
Guidance.\378\ Costs incurred for the same purpose in like 
circumstances must be treated consistently as either direct or indirect 
costs.
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    \378\ Id.
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F. Treatment of Loans

    The interim final rule allowed recipients to use SLFRF funds to 
make loans for uses that are otherwise eligible (for example, for small 
business assistance). Subsequent guidance clarified how recipients must 
track and dispose of program income from loans, consistent with the 
statutory requirements for the timing of SLFRF expenditures.
    SLFRF funds must be used to cover ``costs incurred'' by the 
recipient between March 3, 2021 and December 31, 2024. The interim 
final rule provided that SLFRF funds must be obligated by December 31, 
2024 and expended by December 31, 2026. In using SLFRF funds to make 
loans, recipients must be able to determine the amount of funds used to 
make a loan and must comply with restrictions on the timing of the use 
of funds and with restrictions in the Uniform Guidance.
    When SLFRF funds are used as the principal for loans, there is an 
expectation that a significant share of the loaned funds will be 
repaid. Thus, recipients may not simply consider the full amount of 
loaned funds to be permanently expended and must appropriately account 
for the return of loaned funds.
    For loans that mature or are forgiven on or before December 31, 
2026, the recipient must account for the use of funds on a cash flow 
basis, consistent with Treasury's guidance regarding loans made by 
recipients using payments from the Coronavirus Relief Fund.\379\ 
Recipients may use SLFRF funds to fund the principal of the loan and in 
that case must track repayment of principal and interest (i.e., 
``program income,'' as defined under 2 CFR 200). When the loan is made, 
recipients must report the principal of the loan as an expense.
---------------------------------------------------------------------------

    \379\ Coronavirus Relief Fund for States, Tribal Governments, 
and Certain Eligible Local Governments, 86 FR at 4192.
---------------------------------------------------------------------------

    Repayment of principal may be re-used only for eligible uses and is 
subject to restrictions on the timing of the use of funds. Interest 
payments received prior to the end of the period of performance will be 
considered an addition to the total award and may be used for any 
purpose that is an eligible use of funds under the statute and final 
rule. Recipients are not subject to restrictions under 2 CFR 
200.307(e)(1) with respect to such payments.
    For loans with maturities longer than December 31, 2026, the 
recipient must estimate the cost to the recipient of extending the loan 
over the life of the loan. In other words, at origination, the 
recipient must measure the projected cost of the loan and may use SLFRF 
funds for the projected cost of the loan. Recipients have two options 
for estimating this amount: They may estimate the subsidy cost (i.e., 
net present value of estimated cash flows) or the discounted cash flow 
under current expected credit losses (i.e., CECL method). See further 
guidance issued by Treasury for further explanation.\380\
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    \380\ See FAQ 4.11. Coronavirus State and Local Fiscal Recovery 
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
---------------------------------------------------------------------------

    Public Comment: Many commenters asked for further clarification on 
the treatment of loans and the calculation of ``costs incurred.'' Some 
commenters requested that grants made for eligible activities prior to 
December 31, 2024 to a revolving loan fund, an economic development 
corporation, a land bank, or a similar facility should be considered 
obligated and expended at the time of the grant. This would allow funds 
to be expended by the grantee beyond the covered period and for funds 
returned to the grantee to be re-invested in further uses outside of 
the covered period.
    Treasury Response: The final rule maintains the treatment of loans 
from the interim final rule and subsequent guidance, as discussed 
above. This approach is consistent with the statutory requirement that 
funds be used for costs incurred for eligible purposes by December 31, 
2024 and is consistent with standard accounting practices and the 
Uniform Guidance.

G. Use of Funds for Match or Cost-Share Requirements

    As a general matter and as referenced in the Supplementary 
Information to the interim final rule, funds provided under one federal 
program may not be used by a recipient to meet the non-federal match or 
cost-share requirements of another federal program.
    However, Treasury has since determined that, consistent with this 
general principle and the requirements of the Uniform Guidance at 2 CFR 
200.306(b)(5), the funds available under sections 602(c)(1)(C) and 
603(c)(1)(C) of the Social Security Act for the provision of government 
services, up to the amount of the recipient's reduction in revenue due 
to the public health emergency, generally may be used to meet the non-
federal cost-share or matching requirements of other federal programs. 
Federal funds that constitute revenue sharing to state and local 
governments may generally be used to meet non-federal match 
requirements.\381\ The broad eligible uses of the SLFRF funds available 
under sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security 
Act, combined with the purpose of these provisions (which is to provide 
general fiscal assistance to governments facing revenue losses due to 
the public health emergency), demonstrate that these funds are revenue 
sharing. They thus should generally be permitted to be used to meet the 
non-federal match and cost-share requirements of other federal 
programs. As such, the SLFRF funds available for the provision of 
government services, up to the amount of the recipient's reduction in 
revenue due to the public health emergency, may be used to meet the 
non-federal match requirements of the Drinking Water State Revolving 
Fund and Clean Water State Revolving Fund programs administered by the 
EPA, for example.
---------------------------------------------------------------------------

    \381\ See U.S. Government Accountability Office, Principles of 
Federal Appropriations Law, Third Edition, Volume II, p. 10-99, GAO-
06-382SP (February 2006), https://www.gao.gov/assets/gao-06-382sp.pdf.
---------------------------------------------------------------------------

    Pursuant to 2 CFR 200.306(b) of the Uniform Guidance, if funds are 
legally available to meet the match or cost-share requirements of an 
agency's federal program, such awarding agency is required to accept 
such funds for the purpose of that program's match or cost-share 
requirements except in the circumstances enumerated in that section. 
The Office of Management and Budget has authority under 2 CFR

[[Page 4437]]

200.102 of the Uniform Guidance to issue waivers of this requirement on 
request of the relevant awarding agency. Analogous requirements and 
waiver authorities may be present in other regulations. If a recipient 
seeks to use SLFRF funds to satisfy match or cost-share requirements 
for a federal grant program, it should first confirm with the relevant 
awarding agency that no waiver has been granted for that program, that 
no other circumstances enumerated under 2 CFR 200.306(b) would limit 
the use of SLFRF funds to meet the match or cost-share requirement, and 
that there is no other statutory or regulatory impediment to using the 
SLFRF funds for the match or cost-share requirement. Note that SLFRF 
funds may not be used as the non-federal share for purposes of a 
state's Medicaid and CHIP programs because the Office of Management and 
Budget has approved a waiver as requested by the Centers for Medicare & 
Medicaid Services pursuant to 2 CFR 200.102 of the Uniform Guidance and 
related regulations.
    SLFRF funds beyond those that are available under sections 
602(c)(1)(C) or 603(c)(1)(C) of the Social Security Act for the 
provision of government services may not be used to meet the non-
federal match or cost-share requirements of other federal programs 
other than as specifically provided for by statute. For example, as 
discussed in other sections of this final rule, section 40909 of the 
Infrastructure Investment and Jobs Act provides that SLFRF funds may be 
used to meet the non-federal match requirements of any authorized 
Bureau of Reclamation project, and section 60102 of the Infrastructure 
Investment and Jobs Act provides that the SLFRF may be used to meet the 
non-federal match requirements of the broadband infrastructure program 
authorized under that section (see sections Water and Sewer 
Infrastructure and Broadband Infrastructure).

H. Reporting

    The interim final rule established Treasury's authority to collect 
information from recipients through requested reports and any 
additional requests for information. The interim final rule also 
provided Treasury flexibility to extend or accelerate reporting 
deadlines and to modify requested content for the Interim Report, 
Project and Expenditure reports, and Recovery Plan Performance reports.
    The Supplementary Information of the interim final rule provided 
initial guidance on the reporting requirements for the SLFRF funds. 
States (defined to include the District of Columbia), territories, 
metropolitan cities, counties, and Tribal governments were required to 
submit one interim report and quarterly Project and Expenditure reports 
thereafter. Non-entitlement units of local government were not required 
to submit an interim report. States, territories, and metropolitan 
cities and counties with a population greater than 250,000 residents 
were also required to submit an annual Recovery Plan Performance report 
to Treasury. The Supplementary Information of the interim final rule 
provided guidance on the deadlines and content required for each type 
of report.
    Public Comment: Treasury received many comments on the content and 
specific data elements required of program reporting. Some commenters 
expressed enthusiasm for including particular details in reporting to 
promote transparency. Other commenters requested that Treasury 
streamline reporting requirements to avoid imposing undue 
administrative burdens and compliance costs. Many commenters requested 
further clarification on or amendments to particular elements of 
reporting content. Some commenters requested that reports and specific 
reporting elements be public, including a request for a public website 
with a number of programmatic data metrics about the use of SLFRF 
funds. Some commenters sought clarification and guidance for using the 
reporting portal, which allows recipients to upload the required 
information, or requested user modifications to the portal. Finally, 
some commenters requested that Treasury provide example materials and 
reporting metrics to aid recipient understanding.
    Treasury Response: Since the publication of the interim final rule, 
Treasury issued supplementary reporting guidance in the Compliance and 
Reporting Guidance and in the User Guide: Treasury's Portal for 
Recipient Reporting (User Guide).\382\ Treasury has addressed many of 
these comments in the Compliance and Reporting Guidance and User Guide 
and will continue to issue updated guidance prior to each reporting 
period clarifying any modifications to requested report content. 
Treasury notes that the interim final rule did not address the specific 
content and data elements required in reporting, the reporting portal 
or submission process, and the specific form of reporting (e.g., 
example templates, machine readability); comments on these topics are 
outside the scope of the final rule and, as noted, are addressed 
instead in Compliance and Reporting Guidance.
---------------------------------------------------------------------------

    \382\ U.S. Department of the Treasury, Recipient Compliance and 
Reporting Responsibilities, as of November 5, 2021; https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/recipient-compliance-and-reporting-responsibilities.
---------------------------------------------------------------------------

Reporting Deadlines
    Public Comment: Treasury received comments requesting various 
changes to reporting deadlines to ease compliance burdens. For example, 
Treasury received several comments requesting that Treasury delay early 
reporting deadlines for various reasons, including to align with the 
timeline for issuing a final rule and to allow for more time for 
recipients to determine SLFRF allocations. Commenters also requested 
changes to the immediacy of reporting, for example requesting that 
Treasury allow expenses to be reported with a lag instead of the 
quarter in which they were accrued or that reports be due 90 days after 
period close instead of 30 days after the close of a reporting period. 
Some commenters requested changes to the reporting frequency, for 
example to report biannually rather than quarterly.
    Treasury Response: Treasury has clarified reporting deadlines in 
the Compliance and Reporting guidance.\383\ Treasury is retaining the 
reporting deadline of 30 days after the close of the reporting period 
to ensure timely accounting of the use of SLFRF funds; this timeline 
also aligns with practices in many other federal programs. The final 
rule maintains Treasury's discretion to extend or delay reporting 
deadlines.
---------------------------------------------------------------------------

    \383\ Id.
---------------------------------------------------------------------------

Administrative Costs for Reporting and Compliance
    Public Comment: Many commenters sought clarification about whether 
various administrative costs related to reporting and compliance were 
eligible uses of funds and asked for clarification on the limits of 
such use.
    Treasury Response: Treasury notes that administrative costs are 
generally allowable uses of SLFRF funds, including for reporting. For 
additional information on administrative expenses, please see section 
Administrative Expenses under Program Administration Provisions.
Uniform Guidance
    Public Comment: The Supplementary Information of the interim final 
rule clarified that SLFRF funds were generally subject to the 
provisions of the Uniform Administrative Requirements, Cost Principles, 
and Audit

[[Page 4438]]

Requirements for Federal Awards (2 CFR part 200) (the Uniform 
Guidance), including the cost principles and restrictions on general 
provisions for selected items of cost. Treasury received many comments 
requesting clarification about or modifications to the applicability of 
the Uniform Guidance on various issues.
    For example, one commenter requested that Treasury remove 
requirements that expenditures of funds be made in conformance with the 
Uniform Guidance, particularly in case of expenditures made during 
period from March 3, 2021 to the release of the interim final rule, 
while other comments requested that Treasury raise the single-audit 
threshold from $750,000 to $5 million. Commenters sought clarification 
on items such as: The applicability of the Uniform Guidance for funds 
that are used for the provision of government services, the 
applicability of particular sections of the cost principles provided in 
subpart E of the Uniform Guidance, the applicability of the procurement 
provisions of the Uniform Guidance, and requirements for subrecipient 
reporting.
    Treasury Response: Recipients of SLFRF funds are subject to the 
provisions of the Uniform Guidance (2 CFR part 200) from the date of 
award to the end of the period of performance on December 31, 2026 
unless otherwise specified in this rule or program-specific guidance. 
Costs must follow the requirements in 2 CFR 200 Subpart E, Cost 
Principles, including procurement standards. Recipients that receive an 
aggregate amount of federal financial assistance in a given fiscal year 
that exceeds the Single Audit threshold are subject to the requirements 
in 2 CFR 200 Subpart F, Audit Requirements, unless otherwise specified 
in program-specific guidance.
    SLFRF funds transferred to subrecipients are also subject to 
reporting and Uniform Guidance requirements. Additional information 
about the definition of subrecipients is available in the section 
Distinguishing Subrecipients versus Beneficiaries.
    Recipients should refer to the Assistance Listing for details on 
the specific provisions of the Uniform Guidance that do not apply to 
this program. The Assistance Listing is available on SAM.gov. 
Additional changes to compliance and reporting guidelines, including 
any clarifications on Uniform Guidance requirements, will be addressed 
in Compliance and Reporting Guidance and the User Guide.\384\
---------------------------------------------------------------------------

    \384\ Id.
---------------------------------------------------------------------------

I. Remediation and Recoupment

    Sections 602(e) and 603(e) of the Social Security Act provide the 
Secretary with the power to recoup ``funds used in violation'' of the 
Social Security Act. The interim final rule implemented these 
provisions by establishing a process for recoupment. Treasury may 
identify funds used in violation of the Social Security Act based on 
information submitted by recipients, including as part of reporting 
requirements, as well as information from other sources.\385\ If a 
potential violation is identified, Treasury will provide the recipient 
an initial written notice of the amount subject to recoupment along 
with an explanation of such amounts. A recipient then has 60 calendar 
days following receipt of a recoupment notice to submit a request for 
reconsideration containing any information it believes supports its use 
of funds. Within 60 calendar days of receipt of the request for 
reconsideration, the interim final rule provided that a recipient will 
receive a final notice of the Secretary's decision to affirm, withdraw, 
or modify the recoupment notice. If the recipient did not submit a 
request for reconsideration, the initial notice of recoupment would be 
deemed a final notice. A recipient would then be required to repay any 
amounts subject to recoupment within 120 calendar days of either the 
initial recoupment notice, if the recipient does not request 
reconsideration, or the final recoupment notice, if the recipient does 
request reconsideration.
---------------------------------------------------------------------------

    \385\ Treasury will also consider the tax offset provision on an 
annual basis.
---------------------------------------------------------------------------

Public Comments
    Treasury received several comments on the process for recoupment. 
For instance, some commenters, including many Tribal governments, 
requested additional time to file a request for reconsideration and 
submit repayment to ensure that small entities have the time necessary 
to carry out any logistical steps and consult with counsel. Treasury 
was also asked to align its recoupment process with that of the Office 
of the Inspector General and other departmental administrative 
processes to resolve findings, agency decisions, and related timelines. 
One commenter asked if the 120-calendar-day time limit for repayment 
was based on the initial notice, rather than a final decision issued by 
the Secretary. Several commenters expressed concern regarding the 
recoupment process, arguing that consideration of ``all relevant facts 
and circumstances'' provided Treasury with too much authority and 
created ambiguity. Other commenters urged Treasury to establish a 
robust enforcement and compliance program and process and advocated for 
the creation of a whistleblower mechanism or public complaint process 
to allow public and private entities to report suspected misuses of 
funds. Finally, some commenters requested clarification regarding the 
process after a violation is identified and becomes final. One 
commenter also asked to allow recipients to amend reports deemed to 
contain ineligible expenses and inform recipients how the agency 
intends to resolve instances where a use was later deemed unacceptable. 
Another commenter asked if recouped funds could be released back to the 
recipient.
    Commenters also expressed concern about Treasury's authority to 
recoup funds used in violation of the tax offset provision. Some 
commenters requested additional clarity around when tax cuts would 
trigger Treasury's recoupment authority and the duration of Treasury's 
authority to seek recoupment of such funds.
Treasury Response
    The final rule largely preserves the process established in the 
interim final rule but includes several adjustments to clarify certain 
elements.
    Like the interim final rule, the final rule provides that, after an 
initial determination is made that a recipient has used SLFRF funds in 
violation of the law, a recipient may submit a request for 
reconsideration concerning any amounts identified in a notice provided 
by Treasury. If a recipient chooses to seek reconsideration of the 
initial notice, the recipient must submit a request for reconsideration 
as provided under the final rule. If a recipient does not request 
reconsideration, the initial notice that the recipient received will be 
deemed the final notice.\386\ Treasury has clarified that a recipient 
must invoke and exhaust the procedures available under section 35.10 of 
the final rule prior to seeking judicial review of a recoupment 
decision. Consistent with Section 602(b)(6)(A)(ii)(III) of the Social 
Security Act, if a state or territory is required to repay funds 
pursuant to the Secretary's recoupment authority, the Secretary may 
reduce the amount payable to the state or territory in a second tranche 
payment by the amount that the state or territory would be required to 
repay as recoupment.
---------------------------------------------------------------------------

    \386\ Funds subject to recoupment cannot later be returned.
---------------------------------------------------------------------------

    In the final rule, Treasury has clarified that, if it identifies a 
potential

[[Page 4439]]

violation,\387\ it may request additional information from a recipient 
before initiating the recoupment process and, where necessary, provide 
written notice to the recipient along with an explanation of such 
amounts potentially subject to recoupment. Furthermore, Treasury has 
also made clear that it retains the ability to expedite or extend 
timelines in any adjudication or pre-adjudication process pursuant to 
section 35.4(b) of the final rule, although the general timelines set 
forth in the interim final rule are maintained in the final rule.
    This process is intended to provide the recipient with an adequate 
opportunity to present additional information regarding its uses of 
funds and provides flexibility for recipients to determine the 
information relevant to the particular facts and circumstances. It is 
also flexible enough to align with other adjudication procedures in 
other ARPA recovery programs administered by the Office of Recovery 
Programs at Treasury. As discussed above, the initial notice will 
provide recipients with an explanation of the identified potential 
violation in order to provide recipients with a meaningful opportunity 
to respond. Such initial notice will generally include information 
regarding the specific use of SLFRF funds and the source of such 
information.\388\ This process also will allow the Secretary to take 
into consideration the information provided by recipients, along with 
other relevant information, to ensure SLFRF funds are used in a manner 
consistent with the Social Security Act.
---------------------------------------------------------------------------

    \388\ Treasury may address potential violations based on 
information submitted from recipients, either through quarterly 
reports or self-reported information, and from other sources of 
information as Treasury deems necessary and appropriate (e.g., 
press, information submitted from the public).
---------------------------------------------------------------------------

    Finally, Treasury expects to work with recipients to support the 
use of SLFRF funds consistent with the law. For example, Treasury may 
request additional information from a recipient before initiating the 
recoupment process. In addition, Treasury may pursue other forms of 
remediation and monitoring in conjunction with, or as an alternative 
to, recoupment.\389\ These efforts may include working with recipients 
to identify and substitute permissible uses of SLFRF funds or amending 
uses of SLFRF funds to comply with applicable restrictions.
---------------------------------------------------------------------------

    \389\ Treasury intends to work with recipients to support the 
use of SLFRF funds consistent with the law.
---------------------------------------------------------------------------

    In response to comments regarding the amount of time provided to 
respond to an initial notice, the final rule clarifies that Treasury 
retains the ability to expedite or extend timelines in any adjudication 
or pre-adjudication process pursuant to section 35.4(b) of the final 
rule, although the general timelines set forth in the interim final 
rule are maintained in the final rule.

V. Regulatory Analyses

Executive Orders 12866 and 13563

Regulatory Impact Assessment
    This final rule is a ``significant regulatory action'' under 
section 3(f) of Executive Order 12866 for the purposes of Executive 
Orders 12866 and 13563 because it is likely to have an annual effect on 
the economy of $100 million or more.
    As explained below, this regulation meets a substantial need: 
ensuring that recipients--states, territories, Tribal governments, and 
local governments--of SLFRF funds fully understand the requirements and 
parameters of the program as set forth in the statute and deploy funds 
in a manner that best reflects Congress' intent to provide necessary 
relief to recipient governments adversely impacted by the COVID-19 
public health emergency. Furthermore, as required by Executive Orders 
12866 and 13563, Treasury has weighed the costs and benefits of this 
final rule and varying alternatives and has reasonably determined that 
the benefits of the final rule to recipients and their communities far 
outweigh any costs.
    The rule has been reviewed by the Office of Management and Budget 
(OMB) in accordance with Executive Order 12866.

Executive Orders 12866 and 13563

    Under Executive Order 12866, OMB must determine whether this 
regulatory action is ``significant,'' and therefore, subject to the 
requirements of the Executive Order and subject to review by OMB. 
Section 3(f) of Executive Order 12866 defines a significant regulatory 
action as an action likely to result in a rule that may, among other 
things, have an annual effect on the economy of $100 million or more. 
This rule is likely to have an annual effect on the economy of $100 
million or more, and therefore, it is subject to review by OMB under 
section 3(f) of Executive Order 12866.
    Treasury has also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, section 1(b) of 
Executive Order 13563 requires that an agency: (1) Propose or adopt 
regulations only upon a reasoned determination that their benefits 
justify their costs (recognizing that some benefits and costs are 
difficult to quantify); (2) tailor its regulations to impose the least 
burden on society, consistent with obtaining regulatory objectives 
taking into account, among other things, and to the extent practicable, 
the costs of cumulative regulations; (3) select, in choosing among 
alternative regulatory approaches, those approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety, and other advantages; distributive impacts; and equity); 
(4) to the extent feasible, specify performance objectives, rather than 
the behavior or manner of compliance a regulated entity must adopt; and 
(5) identify and assess available alternatives to direct regulation, 
including providing economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or providing 
information that enables the public to make choices. Executive Order 
13563 also requires an agency ``to use the best available techniques to 
quantify anticipated present and future benefits and costs as 
accurately as possible.'' OMB's Office of Information and Regulatory 
Affairs (OIRA) has emphasized that these techniques may include 
``identifying changing future compliance costs that might result from 
technological innovation or anticipated behavioral changes.''
    Based on the analysis that follows and the reasons stated elsewhere 
in this document, Treasury believes that this final rule is consistent 
with the principles set forth in Executive Orders 12866 and 13563. This 
Regulatory Impact Analysis discusses the need for regulatory action, 
the potential benefits, and the potential costs. Treasury has assessed 
the potential costs and benefits, both quantitative and qualitative, of 
this regulatory action, and is issuing this final rule only on a 
reasoned determination that the benefits exceed the costs. In choosing 
among alternative regulatory approaches, Treasury selected those 
approaches that would maximize net benefits.
Need for Regulatory Action
    This final rule implements the $350 billion SLFRF program of the 
ARPA, which Congress passed to help states, territories, Tribal 
governments, and localities respond to the ongoing COVID-19 public 
health emergency and its economic impacts. As the agency charged with 
execution of these programs, Treasury has concluded that this final 
rule is needed to ensure that recipients of SLFRF funds fully

[[Page 4440]]

understand the requirements and parameters of the program as set forth 
in the statute and deploy funds in a manner that best reflects 
Congress' mandate for targeted fiscal relief. This final rule governs 
the use of $350 billion in grant funds from the federal government to 
states, territories, Tribal governments, and localities, generating a 
significant macroeconomic effect on the U.S. economy. Treasury has 
sought to implement the program in ways that maximize its potential 
benefits while minimizing its costs. It has done so by: aiming to 
target relief in key areas according to the congressional mandate; 
offering clarity to states, territories, Tribal governments, and 
localities while maintaining their flexibility to respond to local 
needs; and limiting administrative burdens.
Analysis of Benefits
    Relative to a pre-statutory baseline, the SLFRF funds provide a 
combined $350 billion to state, local, and Tribal governments for 
fiscal relief and support for costs incurred responding to the COVID-19 
pandemic. Treasury believes that this transfer will generate 
substantial additional economic activity, although given the 
flexibility accorded to recipients in the use of funds, it is not 
possible to precisely estimate the extent to which this will occur and 
the timing with which it will occur. Economic research has demonstrated 
that state fiscal relief is an efficient and effective way to mitigate 
declines in jobs and output during an economic downturn.\390\ Absent 
such fiscal relief, fiscal austerity among state, local, and Tribal 
governments could exert a prolonged drag on the overall economic 
recovery, as occurred following the 2007-2009 recession.\391\
---------------------------------------------------------------------------

    \390\ See, e.g., Gabriel Chodorow-Reich et al., Does state 
Fiscal Relief During Recessions Increase Employment? Evidence from 
the American Recovery and Reinvestment Act, 4 American Economic 
Journal 118-145 (2012) http://dx.doi.org/10.1257/pol.4.3.118.
    \391\ See, e.g., Fitzpatrick, supra note 278.
---------------------------------------------------------------------------

    This final rule provides benefits across several areas by 
implementing the four eligible use categories, as defined in statute: 
strengthening the response to the COVID-19 public health emergency and 
its negative economic impacts; replacing lost revenue to ease fiscal 
pressure on state, local, and Tribal governments that might otherwise 
lead to harmful cutbacks in employment or government services; 
providing premium pay to essential workers; and making necessary 
investments in water, sewer, and broadband infrastructure.
    These benefits are achieved in the final rule through a broadly 
flexible approach that sets clear guidelines on eligible uses of SLFRF 
funds and provides state, local, and Tribal government officials 
discretion within those eligible uses to direct SLFRF funds to areas of 
greatest need within their jurisdiction. While preserving recipients' 
overall flexibility, the final rule includes several provisions that 
implement statutory requirements and will help support use of SLFRF 
funds to achieve the intended benefits. Preserving flexibility for 
recipients not only serves an important public policy goal by allowing 
them to meet particularized and diverse needs of their local 
communities but also enhances the economic benefits of the final rule 
by allowing recipients to choose eligible uses of funds that provide 
the highest utility in their jurisdictions.
    In implementing the ARPA, Treasury has also prioritized supporting 
underserved communities that have been disproportionately impacted by 
the pandemic. The SLFRF program as implemented by the final rule 
provides even greater flexibility to recipients for uses of funds in 
underserved communities, recognizing that pre-existing health and 
economic disparities in these communities amplified the impact of the 
pandemic there. In general, investments in improving health outcomes 
and economic opportunities provide high economic returns, so this 
approach is likely to achieve substantial near-term economic and public 
health benefits, in addition to the longer-term benefits arising from 
the allowable investments in water, sewer, and broadband 
infrastructure.
    The remainder of this section clarifies how Treasury's approach to 
key provisions in the final rule will contribute to greater realization 
of benefits from the program.
Public Health and Negative Economic Impacts
    The eligible use category for responding to the public health and 
negative economic impacts of the pandemic covers a wide range of 
eligible uses of funds. Treasury addresses several key uses of funds in 
this analysis, as well as ways that Treasury has structured this 
eligible use to minimize recipient administrative burden while also 
maintaining targeting of the funding to entities that experienced 
negative impacts from the pandemic.
    Government Employment: In order to bolster the government's ability 
to effectively administer services, the final rule allows for a broader 
set of eligible uses to restore and support public sector employment 
relative to the interim final rule. In particular, eligible uses 
include hiring up to a pre-pandemic baseline that is adjusted for 
historic underinvestment in the public sector by allowing funds to be 
used to pay for payroll and covered benefits associated with the 
recipient increasing its number of employees up to 7.5 percent above 
its pre-pandemic baseline. Eligible uses also include providing 
additional funds for employees who experienced pay cuts or were 
furloughed, avoiding layoffs, providing worker retention incentives, 
and paying for ancillary administrative costs related to hiring.
    Treasury believes this expanded approach, relative to the interim 
final rule, provides useful flexibility to recipients, which may 
increase a state or local government's ability to effectively deliver 
services to its residents. While the interim final rule already 
explicitly permitted using funds to restore recipients' workforces up 
to pre-pandemic levels, the final rule's inclusion of an upward 
adjustment factor recognizes that, as the population or economy of a 
jurisdiction grows over time, more workers are generally needed to 
effectively meet responsibilities. It also provides recipients greater 
room to employ funds toward building back the public sector workforce 
after years of chronic underinvestment since the Great Recession. 
Treasury arrived at the 7.5 percent adjustment factor through an 
analysis of data from the Bureau of Labor Statistics on state and local 
government employment and data from the Census Bureau on population to 
estimate the extent of underinvestment in the public sector since the 
onset of the Great Recession. While Treasury considered a range of 
methodologies and point estimates to set the adjustment factor, a 7.5 
percent factor errs on the side of recipient flexibility. Treasury 
believes this adjustment enhances recipients' ability to identify and 
meet the particularized needs of their communities. Treasury also 
believes that the additional enumerated eligible uses for supporting 
the workforce provide recipients several means to help retain current 
workers, decreasing turnover costs.
Identifying Eligible Populations
    Treasury has provided several methods for recipients to identify 
households, populations, and communities eligible for services that 
respond to the public health and negative economic impacts of the 
pandemic. In general, these methods seek to provide recipients options 
to identify eligible populations with minimal administrative burden, 
while also maintaining targeting of the funds

[[Page 4441]]

to entities impacted by the pandemic. Recipients also retain 
flexibility to identify and serve other populations and entities that 
experienced pandemic impacts, ensuring that recipients can meet the 
particularized needs of their local communities.
    Defining Low and Moderate Income: To streamline the provision of 
funds relating to negative economic impacts resulting from the 
pandemic, Treasury has created an eligibility standard making it easier 
for recipients to provide assistance to low- and moderate-income 
populations without needing to identify and document a specific 
negative economic impact. Populations falling under the definition of 
low income are presumed to have been disproportionately impacted by the 
pandemic, while those falling under the definition of moderate income 
are presumed to have been impacted by the pandemic. In addition, the 
final rule recognizes categorical eligibility for certain enumerated 
programs and populations if a recipient chooses to implement 
categorical eligibility when identifying impacted and 
disproportionately impacted populations. Treasury considered several 
options for eligibility standards that would reduce administrative 
burdens for recipients when determining who qualifies as low and 
moderate income.
    One option involved defining a household as low income or moderate 
income based only on FPG thresholds and could use levels lower than 
those selected. This option involved setting uniform thresholds 
throughout the country.
    A second option took a broader approach, defining a household as 
low income if it has (i) income at or below 185 percent of the FPG for 
the size of its household or (ii) income at or below 40 percent of the 
AMI for its county and size of household. The option defined a 
household as moderate income if it has (i) income at or below 300 
percent of the FPG for the size of its household or (ii) income at or 
below 65 percent of the AMI for its county and size of household. The 
combination of an FPG floor with AMI allows for a regional adjustment 
in areas with substantially higher costs and incomes. Finally, Treasury 
also considered a range of FPG and AMI thresholds above and below these 
levels.
    Treasury chose the second option. Treasury believes that the higher 
FPG floor will ease administrative burdens by making more households 
presumptively eligible for funds meant to address negative economic 
impacts in a targeted manner. With respect to the low-income cutoff, 
185 percent of the FPG for a family of four is $49,025, which is 
approximately the wage earnings for a two-earner household where both 
earners receive the median wage in occupations, such as waiters and 
waitresses and hotel clerks, that were heavily impacted by COVID-19. As 
such, this cutoff is likely to include more workers in industries 
heavily impacted by COVID-19, who may be most likely to face 
disproportionate impacts of the pandemic, than a lower threshold.\392\ 
With respect to the moderate-income cutoff, many households with 
incomes between 200 percent and 300 percent of the FPG struggle with a 
lack of economic security, suggesting that 300 percent of the FPG was 
an appropriate cutoff for moderate income.
---------------------------------------------------------------------------

    \392\ See U.S. Bureau of Labor Statistics, Occupational 
Employment and Wage Estimates, https://www.bls.gov/oes/current/oes_nat.htm (last visited November 9, 2021).
---------------------------------------------------------------------------

    Treasury also considered relatively higher thresholds for both an 
FPG and AMI approach; however, increasing income thresholds for 
presumed eligibility increases the likelihood that higher-income 
workers, who generally experienced fewer economic impacts from the 
pandemic, would become presumed eligible for responsive services. 
Providing services to households that did not experience a negative 
economic impact, or experienced a relatively minimal impact, would 
provide much less benefit than serving households that experienced more 
severe impacts, diluting the benefits of the SLFRF funds.
    In all, Treasury anticipates that these selected thresholds, 
combined with the regional adjustment, will allow resources to be 
targeted toward individuals and households with the greatest need while 
also reducing administrative burdens on recipients.
    Disproportionately Impacted Populations: In the interim final rule, 
Treasury enumerated a broader set of eligible uses for 
disproportionately impacted communities, in recognition of the pre-
existing health, economic, and social disparities that contributed to 
disproportionate pandemic impacts in certain communities and that 
addressing root causes of those disparities constitutes responding to 
the public health and negative economic impacts of the pandemic. To 
identify these communities and reduce administrative burden, Treasury 
allowed recipients to presume that certain populations--those in QCTs 
and those being served by Tribal governments--were disproportionately 
impacted. In the final rule, to further decrease administrative burden 
and enhance recipient flexibility, Treasury is allowing recipients to 
also presume that low-income households were disproportionately 
impacted. Treasury anticipates that adding low-income households as a 
presumed eligible population will maintain targeting of funds to 
populations and communities most likely to have experienced severe 
pandemic impacts, while providing a more flexible approach for 
recipients.
    Identifying Impacted Classes: In the final rule, Treasury 
reiterated its stance in the interim final rule allowing recipients to 
designate a class of households or other entities as impacted or 
disproportionately impacted and provide responsive services. After 
designating a class, recipients can serve a household or entity by 
simply identifying that the household or entity is a member of the 
class. Relative to restricting services to only presumed eligible 
populations identified by Treasury, this decision provides vital 
administrative flexibility for recipients that may identify particular 
impacted classes in the context of their jurisdiction. Treasury 
anticipates that SLFRF funds will be targeted to impacted or 
disproportionately impacted communities, as recipients must demonstrate 
that the designated class experienced negative economic impacts or 
meaningfully more severe negative economic impacts. This approach 
maintains the requirement that entities served have to have experienced 
a negative economic impact, while simultaneously minimizing any 
administrative costs associated with meeting this requirement.
Additional Enumerated Uses
    The interim final rule enumerated eligible uses of SLFRF funds to 
serve both impacted and disproportionately impacted communities. For 
example, enumerated eligible uses to serve impacted communities 
included food assistance; rent, mortgage, or utility assistance; and 
counselling and legal aid to prevent eviction or homelessness. Examples 
of enumerated eligible uses to serve disproportionately impacted 
communities included remediation of lead paint or other lead hazards 
and housing vouchers and assistance relocating to neighborhoods with 
higher levels of economic opportunity. In the final rule, Treasury had 
the option to retain, expand, or reduce enumerated eligible uses, or 
shift use eligibility between disproportionately impacted and impacted 
communities. Many

[[Page 4442]]

public comments suggested potential expansions of uses, including 
shifting enumerated eligible uses for disproportionately impacted 
communities to serve a broader population of impacted communities. 
Taking these comments into account, Treasury generally took this 
approach, in anticipation that the benefits of the program will 
increase while recipient administrative costs in identifying and 
justifying non-enumerated uses of funds will decrease.
    Specifically, Treasury added enumerated eligible uses for impacted 
populations including paid sick, medical, or family leave; health 
insurance subsidies; and services for the unbanked and underbanked, on 
the basis that impacts of the pandemic that were broadly experienced by 
many communities would be addressed by these uses. Treasury also 
shifted some eligible uses, formerly restricted only to 
disproportionately impacted communities, to impacted communities. These 
uses included community violence intervention, assistance accessing or 
applying to public benefits and services, affordable housing 
development, and services to promote healthy childhood environments 
like childcare and early learning. These uses were shifted on the basis 
that the associated impacts of the pandemic were experienced by a 
broader population, and responses are, accordingly, eligible to benefit 
a broader population.
    Additionally, the final rule clarified that investments in parks 
and other public outdoor recreation spaces are enumerated eligible uses 
for disproportionately impacted communities. In including these uses, 
Treasury took into account evidence on the social determinants of 
health, or the ways that social context, like the neighborhood built 
environment, impacts health outcomes. By taking a more holistic 
approach to public health, the final rule allows recipients to respond 
more broadly to factors that contributed to the pandemic's health 
impacts and more fully mitigate those health impacts.
    To balance administrative flexibility with a maintenance of focus 
on impacts of the pandemic, Treasury considered, but did not include, 
other proposed enumerated uses that did not respond to the impacts of 
the pandemic or responded to impacts that were not experienced 
generally across the country by many jurisdictions and populations. For 
example, Treasury did not include pollution remediation broadly, a 
proposed enumerated eligible use for disproportionately impacted 
communities, on the basis that associated projects would only respond 
to disproportionate impacts of the pandemic depending on the specific 
issue addressed. In sum, Treasury expanded enumerated eligible uses 
while retaining a focus on broadly experienced impacts of the pandemic. 
Treasury anticipates that this will give recipients further flexibility 
to presume eligibility and respond to pandemic impacts without 
increasing administrative burden.
    Capital Expenditures: In the interim final rule, Treasury permitted 
funds to be used for a limited number of capital expenditures mostly 
related to the COVID-19 public health response. This decision granted 
recipients some discretion to use SLFRF funds to address COVID-19 
prevention and mitigation through certain investments in equipment, 
real property, and facilities, which Treasury recognized as critical 
components of the public health response. In the final rule, Treasury 
considered maintaining the provisions in the interim final rule or 
expanding allowable capital expenditures to provide recipients greater 
flexibility to pursue other capital investments that are responsive to 
the public health emergency and its negative economic impacts. While 
expanding allowable capital expenditures may increase the risk that 
recipients will undertake large expenditures that do not sufficiently 
address intended harms, or address harms in a less cost-efficient 
manner than an alternative investment (e.g., a program or service), 
expanding allowable capital expenditures would likely help fill 
critical gaps in recipients' response to the pandemic and provide 
equipment and facilities that generate benefits beyond SLFRF's period 
of performance. To preserve flexibility while mitigating risks, the 
final rule allows recipients to undertake an expanded set of capital 
expenditures while requiring additional written justifications for 
projects with an expected total cost at or over $1 million. Treasury 
believes this approach balances the implementation of appropriate risk-
based compliance requirements and the provision of administrative 
convenience for smaller capital expenditures, while generally allowing 
recipients the flexibility to undertake a greater variety of responsive 
capital expenditures.
Revenue Loss
    Revenue Loss Formula: In this final rule, Treasury's approach to 
revenue loss allows recipients to compute the extent of reduction in 
revenue by comparing actual revenue to a counterfactual trend 
representing what could have plausibly been expected to occur in the 
absence of the pandemic. The counterfactual trend begins with the last 
full fiscal year prior to the public health emergency (as required by 
statute) and projects forward with an annualized growth adjustment. 
Treasury has made several adjustments in the final rule to decrease 
administrative burden, reducing costs for recipients, while still 
accurately capturing reductions in revenue due to the pandemic.
    Under the interim final rule, Treasury specified that recipients 
calculate revenue loss on a calendar year basis. In this final rule, 
Treasury is providing recipients the option to calculate revenue loss 
on a calendar year or fiscal year basis, which will allow recipients 
the administrative flexibility to minimize administrative burdens based 
on the data available to them.
    Treasury's decision to incorporate a growth adjustment into the 
calculation of revenue loss ensures that the formula more fully 
captures revenue shortfalls relative to recipients' pre-pandemic 
expectations. Recipients will have the opportunity to calculate revenue 
loss at several points throughout the program, recognizing that some 
recipients may experience revenue effects with a lag. This option to 
re-calculate revenue loss on an ongoing basis is intended to result in 
more support for recipients to avoid harmful cutbacks in future years. 
In calculating revenue loss, recipients will look at general revenue in 
the aggregate, rather than on a source-by-source basis, given that 
recipients may have experienced offsetting changes in revenues across 
sources. The final rule also provides for removing the impact of tax 
increasing or decreasing changes, which affect the amount of revenue 
collected but are not ``due to'' the pandemic, from the calculation of 
revenue loss due to the public health emergency. Both of these 
components of Treasury's approach provide a more accurate 
representation of the effect of the pandemic on overall revenues.
    Revenue Loss Standard Allowance: In addition to largely preserving 
the formula to calculate revenue loss from the interim final rule, 
Treasury also added an alternative ``standard allowance'' option for 
the revenue loss calculation to this final rule. Treasury's decision to 
elect to allow a fixed amount of loss that can be used to fund 
``government services'' allows recipients the flexibility to use 
minimal administrative capacity on the calculation if desired. The 
decision also benefits recipients by allowing them to avoid expending 
administrative

[[Page 4443]]

resources to determine how unique variations in revenue interact with 
the revenue loss formula.
Premium Pay
    Per the ARPA statute, recipients have broad latitude to designate 
critical infrastructure sectors and make grants to third-party 
employers for the purpose of providing premium pay. While the final 
rule provides significant flexibility to implement the statutory 
requirement that premium pay respond to essential workers, it requires 
recipients give written justification in the case that premium pay 
would increase a worker's annual pay above a certain threshold or is 
awarded to an individual whose annual pay is already above that 
threshold. To set this threshold, Treasury analyzed data from the 
Bureau of Labor Statistics to determine a level that would not require 
further justification for premium pay to the vast majority of essential 
workers, while requiring higher scrutiny for provision of premium pay 
to higher earners who, even without premium pay, would likely have 
greater personal financial resources to cope with the effects of the 
pandemic. Alternatively, a recipient need not submit written 
justification to Treasury if the worker receiving premium pay is 
eligible for overtime under the FLSA. Treasury believes this 
alternative, which is an addition to the final rule, will give 
recipients more flexibility and will simplify application of the final 
rule as employers, public and private, are already legally required to 
determine whether an employee is eligible for overtime pay under the 
FLSA. Treasury believes the threshold and overtime eligibility 
provision in the final rule strike the appropriate balance between 
preserving flexibility and helping encourage use of these resources to 
help those in greatest need. The final rule also requires that workers 
eligible for premium pay have regular in-person interactions or regular 
physical handling of items that were also handled by others. This 
requirement will help encourage use of financial resources for those 
who have endured the heightened risk of performing essential work.
Water and Sewer Infrastructure
    In the interim final rule, Treasury aligned eligible uses of funds 
for water and sewer infrastructure to those projects eligible to 
receive financial assistance through the DWSRF and CWSRF administered 
by the EPA.
    The benefits of this approach included giving recipients an 
existing list that would provide them clarity as well as flexibility in 
identifying eligible projects, particularly given the broad range of 
projects eligible under the CWSRF and DWSRF. The approach also ensured 
that projects would conform to vetted project types from a widely used 
program. Treasury received comments from recipients requesting 
additional project categories to be considered eligible, indicating a 
potential cost to maintaining alignment with the CWSRF and DWSRF.
    For the final rule, Treasury has expanded eligibility to include 
several additional project types beyond those covered by the CWSRF and 
DWSRF.
    Treasury believes that expanded eligibility will benefit recipients 
by allowing them additional flexibility to pursue beneficial projects, 
including project categories that support the provision of drinking 
water and the removal, management, and treatment of wastewater and 
stormwater: Additional stormwater management projects, private well 
infrastructure, additional projects that address lead in water, and 
certain dam and reservoir rehabilitation projects undertaken to address 
the provision of drinking water. A potential cost of this approach is 
that uses beyond the CSWRF and DWSRF may have less public guidance 
available to understand project eligibilities. However, Treasury 
anticipates that this eligibility expansion will provide a net benefit 
to recipients by allowing them to pursue projects relevant to their 
goals that were ineligible under the interim final rule.
    The expansion to allow private well infrastructure may also affect 
the distributional impact of SLFRF. Private wells disproportionately 
serve rural Americans, including low-income households, and expanding 
eligibility to include this use may allow SLFRF funds to benefit such 
households. While distributional impacts are uncertain, Treasury 
believes that the potential for benefits to accrue to rural and low-
income households makes it important to clarify that these types of 
projects are eligible.
Broadband Infrastructure
    In the final rule, Treasury expands eligible areas for broadband 
investment by requiring that recipients invest in projects designed to 
provide service to households and businesses with an identified need 
for additional broadband investment, including increasing access to 
high-speed broadband, increasing the affordability of broadband 
services, and improving the reliability of broadband service.\393\ 
Treasury considered multiple alternatives when selecting this standard. 
The threshold for the interim final rule allowed benefits to accrue in 
a more targeted manner to the approximately 9 percent of the country 
with access to speeds under the 25/3 Mbps threshold.\394\ However, 
since SLFRF funds are distributed to tens of thousands of governments 
across the country with a variety of broadband needs, Treasury believes 
that allowing recipients greater flexibility to determine locations to 
serve in their jurisdictions--including considering affordability and 
competition barriers--will lead to greater long-term public benefit. 
Further, given that many federal broadband grant programs are focused 
solely on unserved and underserved areas, Treasury believes that the 
final rule's flexibility enables these funds to fill an important role 
in the overall federal broadband landscape.
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    \393\ Further, the final rule encourages, but does not require, 
that recipients pursue broadband infrastructure projects in 
locations not currently served by a wireline connection that 
reliably delivers at least 100 Mbps of download speed and 20 Mbps of 
upload speed.
    \394\ Data from the Federal Communications Commission shows that 
as of June 2020, 9.07 percent of the U.S. population had no 
available cable or fiber broadband providers providing greater than 
25 Mbps download speeds and 3 Mbps upload speeds. Federal 
Communications Commission, Fixed Broadband Deployment, https://broadbandmap.fcc.gov/#/ (last visited May 9, 2021).
---------------------------------------------------------------------------

    In the final rule, Treasury also requires that broadband projects 
must meet a standard of reliably delivering at least 100 Mbps download 
speeds and upload speeds, or in cases where it is not practicable to do 
so, reliably delivering at least 100 Mbps download speed and between at 
least 20 Mbps and 100 Mbps upload speed while being scalable to 100 
Mbps upload and download speeds. Treasury expects that this threshold 
will yield long-term benefits and allow networks to meet both pandemic-
related and future needs. The Federal Communications Commission (FCC) 
estimates that currently a household with two to three remote learners 
using the internet simultaneously needs a connection supporting 100 
Mbps download speeds.\395\ While a lower threshold may have resulted in 
lower near-term costs to build, it would have potentially constrained 
future utility from the infrastructure by producing infrastructure that 
would more quickly--potentially in the near-term--become obsolete and 
no longer meet household needs, potentially requiring sooner 
replacement and generally decreasing the return on investment. As

[[Page 4444]]

such, projects meeting a lower threshold could not be considered 
``necessary'' investments in broadband infrastructure, so Treasury has 
retained the threshold from the interim final rule.
---------------------------------------------------------------------------

    \395\ See Federal Communications Commission, Broadband Speed 
Guide, available at https://www.fcc.gov/consumers/guides/broadband-speed-guide (last visited October 28, 2021).
---------------------------------------------------------------------------

    Further, the final rule adds a requirement that recipients address 
the affordability needs of low-income consumers in accessing broadband 
networks funded by SLFRF, either by requiring service providers that 
provide service to households to either participate in the FCC's 
Affordable Connectivity Program (ACP), or a broad-based affordability 
program with commensurate benefits. Treasury believes that this 
requirement will increase the number of customers that are able to take 
advantage of broadband infrastructure funded by SLFRF, increasing the 
effectiveness of funds in connecting households and businesses to high-
speed internet that is critical to work, health, and education. There 
is a potential that this requirement may marginally increase project 
costs for recipients and providers, but this impact is uncertain, given 
the varying business models and pricing structures of broadband 
projects and providers.
Labor Standards
    In this Supplementary Information for the final rule, Treasury 
encourages recipients to ensure that capital expenditures to respond to 
the public health and negative economic impacts of the pandemic and 
water, sewer, and broadband projects use strong labor standards, 
including, for example, project labor agreements and community benefits 
agreements that offer wages at or above the prevailing rate and include 
local hire provisions. Treasury believes that its encouragement of 
labor standards carries benefits because it will ensure that workers 
have access to strong employment opportunities associated with 
infrastructure projects, which will in turn aid the economic recovery. 
Treasury believes that infrastructure projects may also benefit from 
stronger labor standards due to the potential of these standards to 
ensure a stronger skilled labor supply and minimize labor disputes and 
workplace injuries, which can result in costly disruptions to projects. 
Treasury assesses that these benefits will increase the economy and 
efficiency of infrastructure projects undertaken through SLFRF and will 
outweigh the potential for a marginal increase in labor costs.
Splitting Payments to Recipients
    Treasury is required by statute to deliver funds to local 
governments in two payments separated by at least twelve months, and 
the interim final rule provided for split payments to a majority of 
states as well. As discussed above, splitting payments ensures that 
recipients can adapt spending plans to evolving economic conditions and 
that at least some of the economic benefits will be realized in 2022 or 
later. However, consistent with authorities granted to Treasury in the 
statute, Treasury recognizes that a subset of states with significant 
remaining elevation in the unemployment rate could face heightened 
additional near term needs to aid unemployed workers and stimulate the 
recovery. Therefore, for a subset of state governments, Treasury has 
provided funds in one payment. Treasury believes that this approach 
strikes an appropriate balance between the general reasons to provide 
funds in two payments and the heightened additional near-term needs in 
specific states. As discussed above, Treasury set a threshold based on 
historical analysis of unemployment rates in recessions.
Reaching Underserved Communities
    Finally, the final rule aims to promote and streamline the 
provision of assistance to individuals and communities in greatest 
need, particularly communities that have been historically underserved 
and have experienced disproportionate impacts of the COVID-19 crisis. 
Targeting relief is in line with Executive Order 13985, ``Advancing 
Racial Equity and Support for Underserved Communities Through the 
Federal Government,'' which laid out an Administration-wide priority to 
support ``equity for all, including people of color and others who have 
been historically underserved, marginalized, and adversely affected by 
persistent poverty and inequality.'' To this end, the final rule 
enumerates a list of services that may be provided using SLFRF funds in 
disproportionately impacted communities, including low-income areas, to 
address the more severe impacts of the pandemic in these communities; 
establishes the characteristics of essential workers eligible for 
premium pay and encouragement to serve workers based on financial need; 
provides that recipients may use SLFRF funds to restore state and local 
workforces, where women and people of color are disproportionately 
represented; and requires that broadband infrastructure projects 
participate in programs to support affordability of broadband service. 
Collectively, these provisions will promote use of resources to 
facilitate the provision of assistance to individuals and communities 
with the greatest need.
Analysis of Costs
    This regulatory action will generate administrative costs relative 
to a pre-statutory baseline. This includes, chiefly, costs required to 
administer SLFRF funds, oversee subrecipients and beneficiaries, and 
file periodic reports with Treasury. It also requires states to 
allocate SLFRF funds to nonentitlement units, which are smaller units 
of local government that are statutorily required to receive their 
funds through states. Treasury expects that the administrative burden 
associated with this program will be moderate for a grant program of 
its size. Treasury expects that many recipients receive direct or 
indirect funding from federal government programs and that many have 
familiarity with how to administer and report on federal funds or grant 
funding provided by other entities. In particular, states, territories, 
and large localities will have received funds from the Coronavirus 
Relief Fund (CRF) and Treasury expects them to rely heavily on 
established processes developed through that program or other prior 
grant funding, mitigating burden on these governments. Treasury has 
enhanced the level of recipient reporting as compared to the CRF, 
incorporating feedback from the Government Accountability Office and 
others that additions would improve the oversight of recipients' use of 
funds. To balance the oversight benefits with the costs of added 
reporting burdens, Treasury has incorporated other mechanisms to 
mitigate burden. For example, Treasury is ``tiering'' reporting 
requirements so that recipients that receive relatively lesser amounts 
of SLFRF funds are required to submit less frequent reports than 
recipients receiving greater amounts of funds. Treasury is noting 
administrative costs as a generally allowable use of SLFRF funds, which 
defrays administrative expenses to recipients that may be needed to 
comply with reporting requirements. Treasury has also provided options 
for recipients to use eligibility thresholds they are already familiar 
with during administration of SLFRF funds, which will enable recipients 
to avoid the costs of setting up new programs and reporting mechanisms 
to meet reporting and compliance requirements. For example, Treasury 
has permitted recipients to use ``categorical eligibility'' when 
delivering assistance to particular groups, such as impacted or 
disproportionately impacted households.

[[Page 4445]]

    In making implementation choices, Treasury has hosted numerous 
consultations with a diverse range of direct recipients--states, 
cities, counties, and Tribal governments--along with various 
communities across the United States, including those that are 
underserved. Furthermore, Treasury has made clear in guidance that 
SLFRF funds may be used to cover certain expenses related to 
administering programs established using SLFRF funds.\396\
---------------------------------------------------------------------------

    \396\ See Coronavirus State and Local Fiscal Recovery Funds, 
Frequently Asked Questions, 10.2, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
---------------------------------------------------------------------------

Executive Order 13132

    Executive Order 13132 (entitled Federalism) prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on state, local, 
and Tribal governments, and is not required by statute, or preempts 
state law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive Order. This final rule does 
not have federalism implications within the meaning of the Executive 
Order and does not impose substantial, direct compliance costs on 
state, local, and Tribal governments or preempt state law within the 
meaning of the Executive Order. The compliance costs are imposed on 
state, local, and Tribal governments by sections 602 and 603 of the 
Social Security Act, as enacted by the ARPA. Notwithstanding the above, 
Treasury has engaged in efforts to consult and work cooperatively with 
affected state, local, and Tribal government officials and associations 
in the process of developing the interim final rule and this final 
rule. Pursuant to the requirements set forth in section 8(a) of 
Executive Order 13132, Treasury certifies that it has complied with the 
requirements of Executive Order 13132.

Administrative Procedure Act

    The Administrative Procedure Act (APA), 5 U.S.C. 551 et seq., 
generally requires public notice and an opportunity for comment before 
a rule becomes effective. However, the APA provides that the 
requirements of 5 U.S.C. 553 do not apply ``to the extent that there is 
involved . . . a matter relating to agency . . . grants.'' The APA also 
provides an exception to ordinary notice-and-comment procedures ``when 
the agency for good cause finds (and incorporates the finding and a 
brief statement of reasons therefor in the rules issued) that notice 
and public procedure thereon are impracticable, unnecessary, or 
contrary to the public interest.'' 5 U.S.C. 553(b)(B). The interim 
final rule was issued without prior notice and comment procedures 
because it implemented statutory conditions on the eligible uses of 
SLFRF funds, and addressed the payment of those funds, the reporting on 
uses of funds, and potential consequences of ineligible uses to help 
address the economic and public health emergency. See the Supplementary 
Information section of the May 17, 2021 interim final rule for the 
applicability of the requirements of 5 U.S.C. 553. In addition, under 
the exception discussed in that section for matters relating to agency 
grants, the requirements of 5 U.S.C. 553 also do not apply to this 
final rule. After careful consideration of the comments received, this 
final rule adopts the May 17, 2021 interim final rule with the 
revisions discussed in this Supplementary Information.

Congressional Review Act

    The Administrator of OIRA has determined that this is a major rule 
for purposes of Subtitle E of the Small Business Regulatory Enforcement 
and Fairness Act of 1996 (also known as the Congressional Review Act or 
CRA) (5 U.S.C. 804(2) et seq.). Under the CRA, a major rule generally 
may take effect no earlier than 60 days after the rule is published in 
the Federal Register. 5 U.S.C. 801(a)(3).

Paperwork Reduction Act

    The information collections associated with the SLFRF program have 
been reviewed and approved by OMB pursuant to the Paperwork Reduction 
Act (44 U.S.C. Chapter 35) (PRA) and assigned control number 1505-0271. 
Under the PRA, an agency may not conduct or sponsor, and a respondent 
is not required to respond to, an information collection unless it 
displays a valid OMB control number.
    Estimates of hourly burden under this program are set forth in the 
table below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Number                                                                          Cost to
                                                  Number     responses      Total                                                  Total     respondents
                  Reporting                    respondents      per       responses              Hours per  response             burden  in  ($48.80 per
                                                             respondent                                                            hours       hour *)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Recipient Payment Form.......................        5,050            1        5,050  .25 (15 minutes)........................      1,262.5      $61,610
Acceptance of Award Terms....................        5,050            1        5,050  .25 (15 minutes)........................      1,262.5       61,610
Title VI Assurances..........................        5,050            1        5,050  .50 (30 minutes)........................        2,525      123,220
Tribal Employment Information Form...........          584            1          584  .75 (45 minutes)........................          438       21,374
Request for Extension Form...................           96            1           96  1.......................................           96        4,685
Annual Recovery Plan Performance Report......          430            1          430  100.....................................       43,000    2,098,400
NEU Distribution Template....................           55            2          110  10......................................        1,100       53,680
Non-UGLG Distribution Template...............           55            2          110  5.......................................          550       26,840
Transfer Forms...............................        1,500            1        1,500  1.......................................        1,500       73,200
Project and Expenditure Report...............       37,000            1       37,000  5.......................................      185,000    9,028,000
                                              ----------------------------------------------------------------------------------------------------------
    Total....................................       54,870  ...........       54,980  ........................................      236,735   11,552,619
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Accountants and Auditors, on the internet at https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm (visited March 28, 2020). Base wage of $33.89/hour increased by 44 percent to account for
  fully loaded employer cost of employee compensation (benefits, etc.) for a fully loaded wage rate of $48.80.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule, or a final rule pursuant to section 
553(b) of the Administrative Procedure Act or another law, the agency 
must prepare a regulatory flexibility analysis that meets the 
requirements of the RFA and publish such analysis in the Federal 
Register. 5 U.S.C. 603, 604.
    Rules that are exempt from notice and comment under the APA or any 
other law are also exempt from the RFA

[[Page 4446]]

requirements, including the requirement to conduct a regulatory 
flexibility analysis, when among other things the agency for good cause 
finds that notice and public procedure are impracticable, unnecessary, 
or contrary to the public interest. Because this rule is exempt from 
the notice and comment requirements of the APA, Treasury is not 
required to conduct a regulatory flexibility analysis.

Rule Text

List of Subjects in 31 CFR Part 35

    Executive compensation, State and Local Governments, Tribal 
Governments, Public health emergency.

    For the reasons stated in the preamble, the United States 
Department of the Treasury amends 31 CFR part 35 as follows:

PART 35--PANDEMIC RELIEF PROGRAMS

0
1. Revise Subpart A to read as follows:

Subpart A--Coronavirus State and Local Fiscal Recovery Funds

Sec.
35.1 Purpose.
35.2 Applicability.
35.3 Definitions.
35.4 Reservation of authority, reporting.
35.5 Use of funds.
35.6 Eligible uses.
35.7 Pensions.
35.8 Tax.
35.9. Compliance with applicable laws.
35.10. Recoupment.
35.11 Payments to States.
35.12. Distributions to nonentitlement units of local government and 
units of general local government.

    Authority:  42 U.S.C. 802(f); 42 U.S.C. 803(f).


Sec.  35.1   Purpose.

    This part implements section 9901 of the American Rescue Plan Act 
(Subtitle M of Title IX of Pub. L. 117-2), which amends Title VI of the 
Social Security Act (42 U.S.C. 801 et seq.) by adding sections 602 and 
603 to establish the Coronavirus State Fiscal Recovery Fund and 
Coronavirus Local Fiscal Recovery Fund.


Sec.  35.2   Applicability.

    This part applies to states, territories, Tribal governments, 
metropolitan cities, nonentitlement units of local government, 
counties, and units of general local government that accept a payment 
or transfer of funds made under section 602 or 603 of the Social 
Security Act.


Sec.  35.3   Definitions.

    Baseline means tax revenue of the recipient for its fiscal year 
ending in 2019, adjusted for inflation in each reporting year using the 
Bureau of Economic Analysis's Implicit Price Deflator for the gross 
domestic product of the United States.
    Capital expenditures has the same meaning given in 2 CFR 200.1.
    County means a county, parish, or other equivalent county division 
(as defined by the Census Bureau).
    Covered benefits include, but are not limited to, the costs of all 
types of leave (vacation, family-related, sick, military, bereavement, 
sabbatical, jury duty), employee insurance (health, life, dental, 
vision), retirement (pensions, 401(k)), unemployment benefit plans 
(Federal and State), workers' compensation insurance, and Federal 
Insurance Contributions Act taxes (which includes Social Security and 
Medicare taxes).
    Covered change means a change in law, regulation, or administrative 
interpretation that reduces any tax (by providing for a reduction in a 
rate, a rebate, a deduction, a credit, or otherwise) or delays the 
imposition of any tax or tax increase. A change in law includes any 
final legislative or regulatory action, a new or changed administrative 
interpretation, and the phase-in or taking effect of any statute or 
rule if the phase-in or taking effect was not prescribed prior to the 
start of the covered period.
    Covered period means, with respect to a state or territory, the 
period that:
    (1) Begins on March 3, 2021; and
    (2) Ends on the last day of the fiscal year of such State or 
territory in which all funds received by the State or territory from a 
payment made under section 602 or 603 of the Social Security Act have 
been expended or returned to, or recovered by, the Secretary.
    COVID-19 means the Coronavirus Disease 2019.
    COVID-19 public health emergency means the period beginning on 
January 27, 2020 and lasting until the termination of the national 
emergency concerning the COVID-19 outbreak declared pursuant to the 
National Emergencies Act (50 U.S.C. 1601 et seq.).
    Deposit means an extraordinary payment of an accrued, unfunded 
liability. The term deposit does not refer to routine contributions 
made by an employer to pension funds as part of the employer's 
obligations related to payroll, such as either a pension contribution 
consisting of a normal cost component related to current employees or a 
component addressing the amortization of unfunded liabilities 
calculated by reference to the employer's payroll costs.
    Eligible employer means an employer of an eligible worker who 
performs essential work.
    Eligible workers means workers needed to maintain continuity of 
operations of essential critical infrastructure sectors, including 
health care; emergency response; sanitation, disinfection, and cleaning 
work; maintenance work; grocery stores, restaurants, food production, 
and food delivery; pharmacy; biomedical research; behavioral health 
work; medical testing and diagnostics; home- and community-based health 
care or assistance with activities of daily living; family or 
childcare; social services work; public health work; vital services to 
Tribes; any work performed by an employee of a State, local, or Tribal 
government; educational work, school nutrition work, and other work 
required to operate a school facility; laundry work; elections work; 
solid waste or hazardous materials management, response, and cleanup 
work; work requiring physical interaction with patients; dental care 
work; transportation and warehousing; work at hotel and commercial 
lodging facilities that are used for COVID-19 mitigation and 
containment; work in a mortuary; and work in critical clinical 
research, development, and testing necessary for COVID-19 response.
    (1) With respect to a recipient that is a metropolitan city, 
nonentitlement unit of local government, or county, workers in any 
additional non-public sectors as each chief executive officer of such 
recipient may designate as critical to protect the health and well-
being of the residents of their metropolitan city, nonentitlement unit 
of local government, or county; or
    (2) With respect to a State, territory, or Tribal government, 
workers in any additional non-public sectors as each Governor of a 
State or territory, or each Tribal government, may designate as 
critical to protect the health and well-being of the residents of their 
State, territory, or Tribal government.
    Essential work means work that:
    (1) Is not performed while teleworking from a residence; and
    (2) Involves:
    (i) Regular in-person interactions with patients, the public, or 
coworkers of the individual that is performing the work; or
    (ii) Regular physical handling of items that were handled by, or 
are to be handled by patients, the public, or coworkers of the 
individual that is performing the work.

[[Page 4447]]

    Funds means, with respect to a recipient, amounts provided to the 
recipient pursuant to a payment made under section 602(b) or 603(b) of 
the Social Security Act or transferred to the recipient pursuant to 
section 603(c)(4) of the Social Security Act.
    General revenue means money that is received from tax revenue, 
current charges, and miscellaneous general revenue, excluding refunds 
and other correcting transactions and proceeds from issuance of debt or 
the sale of investments, agency or private trust transactions, and 
intergovernmental transfers from the Federal Government, including 
transfers made pursuant to section 9901 of the American Rescue Plan 
Act. General revenue also includes revenue from liquor stores that are 
owned and operated by state and local governments. General revenue does 
not include revenues from utilities, except recipients may choose to 
include revenue from utilities that are part of their own government as 
general revenue provided the recipient does so consistently over the 
remainder of the period of performance. Revenue from Tribal business 
enterprises must be included in general revenue.
    Intergovernmental transfers means money received from other 
governments, including grants and shared taxes.
    Low-income household means a household with:
    (1) Income at or below 185 percent of the Federal Poverty 
Guidelines for the size of its household based on the poverty 
guidelines published most recently by the Department of Health and 
Human Services; or
    (2) Income at or below 40 percent of the Area Median Income for its 
county and size of household based on data published most recently by 
the Department of Housing and Urban Development.
    Micro-business means a small business that has five or fewer 
employees, one or more of whom owns the small business.
    Moderate-income household means a household with:
    (1) Income at or below 300 percent of the Federal Poverty 
Guidelines for the size of its household based on poverty guidelines 
published most recently by the Department of Health and Human Services; 
or
    (2) Income at or below 65 percent of the Area Median Income for its 
county and size of household based on data published most recently by 
the Department of Housing and Urban Development.
    Metropolitan city has the meaning given that term in section 
102(a)(4) of the Housing and Community Development Act of 1974 (42 
U.S.C. 5302(a)(4)) and includes cities that relinquish or defer their 
status as a metropolitan city for purposes of receiving allocations 
under section 106 of such Act (42 U.S.C. 5306) for fiscal year 2021.
    Net reduction in total spending is measured as the State or 
territory's total spending for a given reporting year excluding its 
spending of funds, subtracted from its total spending for its fiscal 
year ending in 2019, adjusted for inflation using the Bureau of 
Economic Analysis's Implicit Price Deflator for the gross domestic 
product of the United States for that reporting year.
    Nonentitlement unit of local government means a ``city,'' as that 
term is defined in section 102(a)(5) of the Housing and Community 
Development Act of 1974 (42 U.S.C. 5302(a)(5)), that is not a 
metropolitan city.
    Nonprofit means a nonprofit organization that is exempt from 
Federal income taxation and that is described in section 501(c)(3) or 
501(c)(19) of the Internal Revenue Code.
    Obligation means an order placed for property and services and 
entering into contracts, subawards, and similar transactions that 
require payment.
    Pension fund means a defined benefit plan and does not include a 
defined contribution plan.
    Period of performance means the time period described in Sec.  35.5 
during which a recipient may obligate and expend funds in accordance 
with sections 602(c)(1) and 603(c)(1) of the Social Security Act and 
this subpart.
    Premium pay means an amount of up to $13 per hour that is paid to 
an eligible worker, in addition to wages or remuneration the eligible 
worker otherwise receives, for all work performed by the eligible 
worker during the COVID-19 public health emergency. Such amount may not 
exceed $25,000 in total over the period of performance with respect to 
any single eligible worker. Premium pay may be awarded to non-hourly 
and part-time eligible workers performing essential work. Premium pay 
will be considered to be in addition to wages or remuneration the 
eligible worker otherwise receives if, as measured on an hourly rate, 
the premium pay is:
    (1) With regard to work that the eligible worker previously 
performed, pay and remuneration equal to the sum of all wages and 
remuneration previously received plus up to $13 per hour with no 
reduction, substitution, offset, or other diminishment of the eligible 
worker's previous, current, or prospective wages or remuneration; or
    (2) With regard to work that the eligible worker continues to 
perform, pay of up to $13 per hour that is in addition to the eligible 
worker's regular rate of wages or remuneration, with no reduction, 
substitution, offset, or other diminishment of the worker's current and 
prospective wages or remuneration.
    Qualified census tract has the same meaning given in 26 U.S.C. 
42(d)(5)(B)(ii)(I).
    Recipient means a State, territory, Tribal government, metropolitan 
city, nonentitlement unit of local government, county, or unit of 
general local government that receives a payment made under section 
602(b) or 603(b) of the Social Security Act or transfer pursuant to 
section 603(c)(4) of the Social Security Act.
    Reporting year means a single year or partial year within the 
covered period, aligned to the current fiscal year of the State or 
territory during the covered period.
    Secretary means the Secretary of the Treasury.
    State means each of the 50 States and the District of Columbia.
    Small business means a business concern or other organization that:
    (1) Has no more than 500 employees or, if applicable, the size 
standard in number of employees established by the Administrator of the 
Small Business Administration for the industry in which the business 
concern or organization operates, and
    (2) Is a small business concern as defined in section 3 of the 
Small Business Act (15 U.S.C. 632).
    Tax revenue means revenue received from a compulsory contribution 
that is exacted by a government for public purposes excluding refunds 
and corrections and, for purposes of Sec.  35.8, intergovernmental 
transfers. Tax revenue does not include payments for a special 
privilege granted or service rendered, employee or employer assessments 
and contributions to finance retirement and social insurance trust 
systems, or special assessments to pay for capital improvements.
    Territory means the Commonwealth of Puerto Rico, the United States 
Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, 
or American Samoa.
    Title I eligible schools means schools eligible to receive services 
under section 1113 of Title I, Part A of the Elementary and Secondary 
Education Act of 1965, as amended (20 U.S.C. 6313), including schools 
served under section 1113(b)(1)(C) of that Act.
    Tribal enterprise means a business concern:

[[Page 4448]]

    (1) That is wholly owned by one or more Tribal governments, or by a 
corporation that is wholly owned by one or more Tribal governments; or
    (2) That is owned in part by one or more Tribal governments, or by 
a corporation that is wholly owned by one or more Tribal governments, 
if all other owners are either United States citizens or small business 
concerns, as these terms are used and consistent with the definitions 
in 15 U.S.C. 657a(b)(2)(D).
    Tribal government means the recognized governing body of any Indian 
or Alaska Native Tribe, band, nation, pueblo, village, community, 
component band, or component reservation, individually identified 
(including parenthetically) in the list published on January 29, 2021, 
pursuant to section 104 of the Federally Recognized Indian Tribe List 
Act of 1994 (25 U.S.C. 5131).
    Unemployment rate means the U-3 unemployment rate provided by the 
Bureau of Labor Statistics as part of the Local Area Unemployment 
Statistics program, measured as total unemployment as a percentage of 
the civilian labor force.
    Unemployment trust fund means an unemployment trust fund 
established under section 904 of the Social Security Act (42 U.S.C. 
1104).
    Unit of general local government has the meaning given to that term 
in section 102(a)(1) of the Housing and Community Development Act of 
1974 (42 U.S.C. 5302(a)(1)).


Sec.  35.4   Reservation of authority, reporting.

    (a) Reservation of authority. Nothing in this part shall limit the 
authority of the Secretary to take action to enforce conditions or 
violations of law, including actions necessary to prevent evasions of 
this subpart.
    (b) Extensions or accelerations of timing. The Secretary may extend 
or accelerate any deadline or compliance date of this part, including 
reporting requirements that implement this subpart, if the Secretary 
determines that such extension or acceleration is appropriate. In 
determining whether an extension or acceleration is appropriate, the 
Secretary will consider the period of time that would be extended or 
accelerated and how the modified timeline would facilitate compliance 
with this subpart.
    (c) Reporting and requests for other information. During the period 
of performance, recipients shall provide to the Secretary periodic 
reports providing detailed accounting of the uses of funds, 
modifications to a State or Territory's tax revenue sources, and such 
other information as the Secretary may require for the administration 
of this section. In addition to regular reporting requirements, the 
Secretary may request other additional information as may be necessary 
or appropriate, including as may be necessary to prevent evasions of 
the requirements of this subpart. False statements or claims made to 
the Secretary may result in criminal, civil, or administrative 
sanctions, including fines, imprisonment, civil damages and penalties, 
debarment from participating in Federal awards or contracts, and/or any 
other remedy available by law.


Sec.  35.5   Use of funds.

    (a) In general. A recipient may only use funds to cover costs 
incurred during the period beginning March 3, 2021, and ending December 
31, 2024, for one or more of the purposes enumerated in sections 
602(c)(1) and 603(c)(1) of the Social Security Act, as applicable, 
including those enumerated in Sec.  35.6, subject to the restrictions 
set forth in sections 602(c)(2) and 603(c)(2) of the Social Security 
Act, as applicable.
    (b) Costs incurred. A cost shall be considered to have been 
incurred for purposes of paragraph (a) of this section if the recipient 
has incurred an obligation with respect to such cost by December 31, 
2024.
    (c) Return of funds. A recipient must return any funds not 
obligated by December 31, 2024. A recipient must also return funds 
obligated by December 31, 2024 but not expended by December 31, 2026.


Sec.  35.6   Eligible uses.

    (a) In general. Subject to Sec. Sec.  35.7 and 35.8, a recipient 
may use funds for one or more of the purposes described in paragraphs 
(b) through (f) of this section.
    (b) Responding to the public health emergency or its negative 
economic impacts. A recipient may use funds to respond to the public 
health emergency or its negative economic impacts if the use meets the 
criteria provided in paragraph (b)(1) of this section or is enumerated 
in paragraph (b)(3) of this section; provided that, in the case of a 
use of funds for a capital expenditure under paragraphs (b)(1) or 
(b)(3) of this section, the use of funds must also meet the criteria 
provided in paragraph (b)(4) of this section. Treasury may also 
articulate additional eligible programs, services, or capital 
expenditures from time to time that satisfy the eligibility criteria of 
this paragraph (b), which shall be eligible under this paragraph (b).
    (1) Identifying eligible responses to the public health emergency 
or its negative economic impacts. (i) A program, service, or capital 
expenditure is eligible under this paragraph (b)(1) if a recipient 
identifies a harm or impact to a beneficiary or class of beneficiaries 
caused or exacerbated by the public health emergency or its negative 
economic impacts and the program, service, or capital expenditure 
responds to such harm.
    (ii) A program, service, or capital expenditure responds to a harm 
or impact experienced by an identified beneficiary or class of 
beneficiaries if it is reasonably designed to benefit the beneficiary 
or class of beneficiaries that experienced the harm or impact and is 
related and reasonably proportional to the extent and type of harm or 
impact experienced.
    (2) Identified harms: Presumptions of impacted and 
disproportionately impacted beneficiaries. A recipient may rely on the 
following presumptions to identify beneficiaries presumptively impacted 
or disproportionately impacted by the public health emergency or its 
negative economic impacts for the purpose of providing a response under 
paragraph (b)(1) or (b)(3) of this section:
    (i) Households or populations that experienced unemployment; 
experienced increased food or housing insecurity; qualify for the 
Children's Health Insurance Program (42 U.S.C. 1397aa et seq.), 
Childcare Subsidies through the Child Care and Development Fund Program 
(42 U.S.C. 9857 et seq. and 42 U.S.C. 618), or Medicaid (42 U.S.C. 1396 
et seq.); if funds are to be used for affordable housing programs, 
qualify for the National Housing Trust Fund (12 U.S.C. 4568) or the 
Home Investment Partnerships Program (42 U.S.C. 12721 et seq.); if 
funds are to be used to address impacts of lost instructional time for 
students in kindergarten through twelfth grade, any student who did not 
have access to in-person instruction for a significant period of time; 
and low- and moderate-income households and populations are presumed to 
be impacted by the public health emergency or its negative economic 
impacts;
    (ii) The general public is presumed to be impacted by the public 
health emergency for the purposes of providing the uses set forth in 
subparagraphs (b)(3)(i)(A) and (b)(3)(i)(C); and
    (iii) The following households, communities, small businesses, and 
nonprofit organizations are presumed to be disproportionately impacted 
by the public health emergency or its negative economic impacts:
    (A) Households and populations residing in a qualified census 
tract;

[[Page 4449]]

households and populations receiving services provided by Tribal 
governments; households and populations residing in the territories; 
households and populations receiving services provided by territorial 
governments; low-income households and populations; households that 
qualify for Temporary Assistance for Needy Families (42 U.S.C. 601 et 
seq.), the Supplemental Nutrition Assistance Program (7 U.S.C. 2011 et 
seq.), Free and Reduced Price School Lunch and/or Breakfast programs 
(42 U.S.C. 1751 et seq. and 42 U.S.C. 1773), Medicare Part D Low-income 
Subsidies (42 U.S.C. 1395w-114), Supplemental Security Income (42 
U.S.C. 1381 et seq.), Head Start (42 U.S.C. 9831 et seq.), Early Head 
Start (42 U.S.C. 9831 et seq.), the Special Supplemental Nutrition 
Program for Women, Infants, and Children (42 U.S.C. 1786), Section 8 
Vouchers (42 U.S.C. 1437f), the Low-Income Home Energy Assistance 
Program (42 U.S.C. 8621 et seq.), Pell Grants (20 U.S.C. 1070a), and, 
if SLFRF funds are to be used for services to address educational 
disparities, Title I eligible schools;
    (B) Small businesses operating in a qualified census tract, 
operated by Tribal governments or on Tribal lands, or operating in the 
territories; and
    (C) Nonprofit organizations operating in a qualified census tract, 
operated by Tribal governments or on Tribal lands, or operating in the 
territories.
    (3) Enumerated eligible uses: Responses presumed reasonably 
proportional. A recipient may use funds to respond to the public health 
emergency or its negative economic impacts on a beneficiary or class of 
beneficiaries for one or more of the following purposes unless such use 
is grossly disproportionate to the harm caused or exacerbated by the 
public health emergency or its negative economic impacts:
    (i) Responding to the public health impacts of the public health 
emergency for purposes including:
    (A) COVID-19 mitigation and prevention in a manner that is 
consistent with recommendations and guidance from the Centers for 
Disease Control and Prevention, including vaccination programs and 
incentives; testing programs; contact tracing; isolation and 
quarantine; mitigation and prevention practices in congregate settings; 
acquisition and distribution of medical equipment for prevention and 
treatment of COVID-19, including personal protective equipment; COVID-
19 prevention and treatment expenses for public hospitals or health 
care facilities, including temporary medical facilities; establishing 
or enhancing public health data systems; installation and improvement 
of ventilation systems in congregate settings, health facilities, or 
other public facilities; and assistance to small businesses, 
nonprofits, or impacted industries to implement mitigation measures;
    (B) Medical expenses related to testing and treating COVID-19 that 
are provided in a manner consistent with recommendations and guidance 
from the Centers for Disease Control and Prevention, including 
emergency medical response expenses, treatment of long-term symptoms or 
effects of COVID-19, and costs to medical providers or to individuals 
for testing or treating COVID-19;
    (C) Behavioral health care, including prevention, treatment, 
emergency or first-responder programs, harm reduction, supports for 
long-term recovery, and behavioral health facilities and equipment; and
    (D) Preventing and responding to increased violence resulting from 
the public health emergency, including community violence intervention 
programs, or responding to increased gun violence resulting from the 
public health emergency, including payroll and covered benefits 
associated with community policing strategies; enforcement efforts to 
reduce gun violence; and investing in technology and equipment;
    (ii) Responding to the negative economic impacts of the public 
health emergency for purposes including:
    (A) Assistance to households and individuals, including:
    (1) Assistance for food; emergency housing needs; burials, home 
repairs, or weatherization; internet access or digital literacy; cash 
assistance; and assistance accessing public benefits;
    (2) Paid sick, medical, or family leave programs, or assistance to 
expand access to health insurance;
    (3) Childcare, early learning services, home visiting, or 
assistance for child welfare-involved families or foster youth;
    (4) Programs to address the impacts of lost instructional time for 
students in kindergarten through twelfth grade;
    (5) Development, repair, and operation of affordable housing and 
services or programs to increase long-term housing security;
    (6) Financial services that facilitate the delivery of Federal, 
State, or local benefits for unbanked and underbanked individuals;
    (7) Benefits for the surviving family members of individuals who 
have died from COVID-19, including cash assistance to surviving spouses 
or dependents of individuals who died of COVID-19;
    (8) Assistance for individuals who want and are available for work, 
including those who are unemployed, have looked for work sometime in 
the past 12 months, who are employed part time but who want and are 
available for full-time work, or who are employed but seeking a 
position with greater opportunities for economic advancement;
    (9) Facilities and equipment related to the provision of services 
to households provided in subparagraphs (b)(3)(ii)(A)(1)-(8);
    (10) The following expenses related to Unemployment Trust Funds:
    (i) Contributions to a recipient Unemployment Trust Fund and 
repayment of principal amounts due on advances received under Title XII 
of the Social Security Act (42 U.S.C. 1321) up to an amount equal to 
the difference between the balance in the recipient's Unemployment 
Trust Fund as of January 27, 2020 and the balance of such account as of 
May 17, 2021 plus the principal amount outstanding as of May 17, 2021 
on any advances received under Title XII of the Social Security Act 
between January 27, 2020 and May 17, 2021; provided that if a recipient 
repays principal on Title XII advances or makes a contribution to an 
Unemployment Trust Fund after April 1, 2022, such recipient shall not 
reduce average weekly benefit amounts or maximum benefit entitlements 
prior to December 31, 2024; and
    (ii) Any interest due on such advances received under Title XII of 
the Social Security Act (42 U.S.C. 1321); and
    (11) A program, service, capital expenditure, or other assistance 
that is provided to a disproportionately impacted household, 
population, or community, including:
    (i) Services to address health disparities of the 
disproportionately impacted household, population, or community;
    (ii) Housing vouchers and relocation assistance;
    (iii) Investments in communities to promote improved health 
outcomes and public safety such as parks, recreation facilities, and 
programs that increase access to healthy foods;
    (iv) Capital expenditures and other services to address vacant or 
abandoned properties;
    (v) Services to address educational disparities; and
    (vi) Facilities and equipment related to the provision of these 
services to the disproportionately impacted household, population, or 
community.

[[Page 4450]]

    (B) Assistance to small businesses, including:
    (1) Programs, services, or capital expenditures that respond to the 
negative economic impacts of the COVID-19 public health emergency, 
including loans or grants to mitigate financial hardship such as 
declines in revenues or impacts of periods of business closure, or 
providing technical assistance; and
    (2) A program, service, capital expenditure, or other assistance 
that responds to disproportionately impacted small businesses, 
including rehabilitation of commercial properties; storefront and 
fa[ccedil]ade improvements; technical assistance, business incubators, 
and grants for start-ups or expansion costs for small businesses; and 
programs or services to support micro-businesses;
    (C) Assistance to nonprofit organizations including programs, 
services, or capital expenditures, including loans or grants to 
mitigate financial hardship such as declines in revenues or increased 
costs, or technical assistance;
    (D) Assistance to tourism, travel, hospitality, and other impacted 
industries for programs, services, or capital expenditures, including 
support for payroll costs and covered benefits for employees, 
compensating returning employees, support for operations and 
maintenance of existing equipment and facilities, and technical 
assistance; and
    (E) Expenses to support public sector capacity and workforce, 
including:
    (1) Payroll and covered benefit expenses for public safety, public 
health, health care, human services, and similar employees to the 
extent that the employee's time is spent mitigating or responding to 
the COVID-19 public health emergency;
    (2) Payroll, covered benefit, and other costs associated with 
programs or services to support the public sector workforce and with 
the recipient:
    (i) Hiring or rehiring staff to fill budgeted full-time equivalent 
positions that existed on January 27, 2020 but that were unfilled or 
eliminated as of March 3, 2021; or
    (ii) Increasing the number of its budgeted full-time equivalent 
employees by up to the difference between the number of its budgeted 
full-time equivalent employees on January 27, 2020, multiplied by 
1.075, and the number of its budgeted full-time equivalent employees on 
March 3, 2021, provided that funds shall only be used for additional 
budgeted full-time equivalent employees above the recipient's number of 
budgeted full-time equivalent employees as of March 3, 2021;
    (3) Costs to improve the design and execution of programs 
responding to the COVID-19 pandemic and to administer or improve the 
efficacy of programs addressing the public health emergency or its 
negative economic impacts; and
    (4) Costs associated with addressing administrative needs of 
recipient governments that were caused or exacerbated by the pandemic.
    (4) Capital expenditures. A recipient, other than a Tribal 
government, must prepare a written justification for certain capital 
expenditures according to Table 1 to paragraph (b)(4) of this section. 
Such written justification must include the following elements:
    (i) Describe the harm or need to be addressed;
    (ii) Explain why a capital expenditure is appropriate; and
    (iii) Compare the proposed capital expenditure to at least two 
alternative capital expenditures and demonstrate why the proposed 
capital expenditure is superior.

                       Table 1 to Paragraph (b)(4)
------------------------------------------------------------------------
                                    and the use is    and the use is not
 If a project has total expected     enumerated in       enumerated in
     capital expenditures of         (b)(3), then        (b)(3), then
------------------------------------------------------------------------
Less than $1 million............  No Written          No Written
                                   Justification       Justification
                                   required.           required.
Greater than or equal to $1       Written             Written
 million, but less than $10        Justification       Justification
 million.                          required but        required and
                                   recipients are      recipients must
                                   not required to     submit as part of
                                   submit as part of   regular reporting
                                   regular reporting   to Treasury.
                                   to Treasury.
$10 million or more.............  Written
                                   Justification
                                   required and
                                   recipients must
                                   submit as part of
                                   regular reporting
                                   to Treasury.
------------------------------------------------------------------------

    (c) Providing premium pay to eligible workers. A recipient may use 
funds to provide premium pay to eligible workers of the recipient who 
perform essential work or to provide grants to eligible employers that 
have eligible workers who perform essential work, provided that any 
premium pay or grants provided under this paragraph (c) must respond to 
eligible workers performing essential work during the COVID-19 public 
health emergency. A recipient uses premium pay or grants provided under 
this paragraph (c) to respond to eligible workers performing essential 
work during the COVID-19 public health emergency if:
    (1) The eligible worker's total wages and remuneration, including 
the premium pay, is less than or equal to 150 percent of the greater of 
such eligible worker's residing State's or county's average annual wage 
for all occupations as defined by the Bureau of Labor Statistics' 
Occupational Employment and Wage Statistics;
    (2) The eligible worker is not exempt from the Fair Labor Standards 
Act overtime provisions (29 U.S.C. 207); or
    (3) The recipient has submitted to the Secretary a written 
justification that explains how providing premium pay to the eligible 
worker is responsive to the eligible worker performing essential work 
during the COVID-19 public health emergency (such as a description of 
the eligible workers' duties, health, or financial risks faced due to 
COVID-19, and why the recipient determined that the premium pay was 
responsive despite the worker's higher income).
    (d) Providing government services. A recipient may use funds for 
the provision of government services to the extent of the reduction in 
the recipient's general revenue due to the public health emergency, 
calculated according to this paragraph (d). A recipient must make a 
one-time election to calculate the amount of the reduction in the 
recipient's general revenue due to the public health emergency 
according to either paragraph (d)(1) or (d)(2) of this section:
    (1) Standard allowance. The reduction in the recipient's general 
revenue due to the public health emergency over the period of 
performance will be deemed to be ten million dollars; or
    (2) Formula. The reduction in the recipient's general revenue due 
to the public health emergency over the period of performance equals 
the sum of the reduction in revenue, calculated as of each date 
identified in paragraph (d)(2)(i) of this section and according to the 
formula in paragraph (d)(2)(ii) of this section:

[[Page 4451]]

    (i) A recipient must make a one-time election to calculate the 
reduction in its general revenue using information as of either:
    (A) December 31, 2020, December 31, 2021, December 31, 2022, and 
December 31, 2023; or
    (B) The last day of each of the recipient's fiscal years ending in 
2020, 2021, 2022, and 2023.
    (ii) A reduction in a recipient's general revenue for each date 
identified in paragraph (d)(2)(i) of this section equals:
Max {[Base Year Revenue * (1 + Growth 
Adjustment)[supcaret](n<INF>t</INF>/12)]-Actual General Revenue; 
0{time} 

    Where:
    (A) Base Year Revenue is the recipient's general revenue for the 
most recent full fiscal year prior to the COVID-19 public health 
emergency;
    (B) Growth Adjustment is equal to the greater of 5.2 percent (or 
0.052) and the recipient's average annual revenue growth over the three 
full fiscal years prior to the COVID-19 public health emergency;
    (C) n equals the number of months elapsed from the end of the base 
year to the calculation date;
    (D) Subscript t denotes the specific calculation date; and
    (E) Actual General Revenue is a recipient's actual general revenue 
collected during the 12-month period ending on each calculation date 
identified in paragraph (d)(2)(i) of this section, except:
    (1) For purposes of all calculation dates on or after April 1, 
2022, in the case of any change made after January 6, 2022 to any law, 
regulation, or administrative interpretation that reduces any tax (by 
providing for a reduction in a rate, a rebate, a deduction, a credit, 
or otherwise) or delays the imposition of any tax or tax increase and 
that the recipient assesses has had the effect of decreasing the amount 
of tax revenue collected during the 12-month period ending on the 
calculation date relative to the amount of tax revenue that would have 
been collected in the absence of such change, the recipient must add to 
actual general revenue the amount of such decrease in tax revenue;
    (2) For purposes of any calculation date on or after April 1, 2022, 
in the case of any change made after January 6, 2022 to any law, 
regulation, or administrative interpretation that increases any tax (by 
providing for an increase in a rate, the reduction of a rebate, a 
deduction, or a credit, or otherwise) or accelerates the imposition of 
any tax or tax increase and that the recipient assesses has had the 
effect of increasing the amount of tax revenue collected during the 12-
month period ending on the calculation date relative to the amount of 
tax revenue that would have been collected in the absence of such 
change, the recipient must subtract from actual general revenue the 
amount of such increase in tax revenue;
    (3) If the recipient makes a one-time election to adjust general 
revenue to reflect tax changes made during the period beginning on 
January 27, 2020 and ending on January 6, 2022, for purposes of each 
calculation date identified in paragraph (d)(2)(i) of this section:
    (i) In the case of any change made during such prior period to any 
law, regulation, or administrative interpretation that reduces any tax 
(by providing for a reduction in a rate, a rebate, a deduction, a 
credit, or otherwise) or delays the imposition of any tax or tax 
increase and that the recipient assesses has had the effect of 
decreasing the amount of tax revenue collected during the 12-month 
period ending on the calculation date relative to the amount of tax 
revenue that would have been collected in the absence of such change, 
the recipient must add to actual general revenue the amount of such 
decrease in tax revenue; and
    (ii) In the case of any change made during such prior period to any 
law, regulation, or administrative interpretation that increases any 
tax (by providing for an increase in a rate, the reduction of a rebate, 
a deduction, or a credit, or otherwise) or accelerates the imposition 
of any tax or tax increase and that the recipient assesses has had the 
effect of increasing the amount of tax revenue collected during the 12-
month period ending on the calculation date relative to the amount of 
tax revenue that would have been collected in the absence of such 
change, the recipient must subtract from actual general revenue the 
amount of such increase in tax revenue; and
    (4) With respect to any calculation date during the period 
beginning on January 6, 2022 and ending on March 31, 2022, if the 
recipient makes the election in paragraph (d)(3) of this section, the 
recipient must also make the adjustments referenced in paragraph (d)(3) 
of this section with respect to any such changes in law, regulation, or 
administrative interpretation during the period beginning on January 6, 
2022 and ending on such calculation date.
    (e) Making necessary investments in water, sewer, and broadband 
infrastructure. A recipient may use funds to make the following 
investments in water, sewer, and broadband infrastructure.
    (1) Water and sewer investments--(i) Clean Water State Revolving 
Fund projects. Projects or activities of the type that meet the 
eligibility requirements of section 603(c) of the Federal Water 
Pollution Control Act (33 U.S.C. 1383(c));
    (ii) Additional stormwater projects. Projects to manage, reduce, 
treat, or recapture stormwater or subsurface drainage water regardless 
of whether such projects would improve water quality if such projects 
would otherwise meet the eligibility requirements of section 603(c)(5) 
of the Federal Water Pollution Control Act (33 U.S.C. 1383(c)(5));
    (iii) Drinking Water State Revolving Fund projects. Projects or 
activities of the type that meet the eligibility requirements of 
section 1452 of the Safe Drinking Water Act (42 U.S.C. 300j-12) as 
implemented by the regulations adopted by the Environmental Protection 
Agency (EPA) under 40 CFR 35.3520, provided that:
    (A) The recipient is not required to comply with the limitation 
under 40 CFR 35.3520(c)(2) to acquisitions of land from willing sellers 
or the prohibition under 40 CFR 35.3520(e)(6) on uses of funds for 
certain Tribal projects; and
    (B) In the case of lead service line replacement projects, the 
recipient must replace the full length of the service line and may not 
replace only a partial portion of the service line.
    (iv) Additional lead remediation and household water quality 
testing. Projects or activities to address lead in drinking water or 
provide household water quality testing that are within the scope of 
the programs the EPA is authorized to establish under sections 
1459A(b)(2), 1459B(b)(1), 1464(d)(2), and 1465 of the Safe Drinking 
Water Act (42 U.S.C. 300j-19a(b)(2), 300j-19b(b)(1), 300j-24(d)(2), and 
300j-25), provided that:
    (A) In the case of lead service line replacement projects, the 
recipient must replace the full length of the service line and may not 
replace only a partial portion of the service line; and
    (B) In the case of projects within the scope of the program the EPA 
is authorized to establish under section 1459B(b)(1) of the Safe 
Drinking Water Act, the recipient may determine the income eligibility 
of homeowners served by lead service line replacement projects in its 
discretion.
    (v) Drinking water projects to support increased population. 
Projects of the type that meet the eligibility requirements of 40 CFR 
35.3520 other than the requirement of subparagraph

[[Page 4452]]

(b)(1) of such regulation to address present or prevent future 
violations of health-based drinking water standards, if the following 
conditions are met:
    (A) The project is needed to support increased population, with 
need assessed as of the time the project is undertaken;
    (B) The project is designed to support no more than a reasonable 
level of projected increased need, whether due to population growth or 
otherwise;
    (C) The project is a cost-effective means for achieving the desired 
level of service; and
    (D) The project is projected to continue to provide an adequate 
level of drinking water over its estimated useful life.
    (vi) Dams and reservoirs. Rehabilitation of dams and reservoirs if 
the following conditions are met:
    (A) The project meets the requirements of 40 CFR 35.3520 other than 
the following requirements:
    (1) The prohibition on the rehabilitation of dams and reservoirs in 
40 CFR 35.3520(e)(1) and (3); and
    (2) The requirement in 40 CFR 35.3520(b)(1) that the project is 
needed to address present or prevent future violations of health-based 
drinking water standards, provided that if the dam or reservoir project 
does not meet this requirement, the project must be needed to support 
increased population, with need assessed as of the time the project is 
undertaken, and the project must be projected to continue to provide an 
adequate level of drinking water over its estimated useful life;
    (B) The primary purpose of the dam or reservoir is for drinking 
water supply;
    (C) The project is needed for the provision of drinking water 
supply, with need assessed as of the time the project is initiated;
    (D) The project is designed to support no more than a reasonable 
level of projected increased need, whether due to population growth or 
otherwise; and
    (E) The project is a cost-effective means for achieving the desired 
level of service.
    (vii) Private wells. Rehabilitation of private wells, testing 
initiatives to identify contaminants in private wells, and treatment 
activities and remediation projects that address contamination in 
private wells, if the project meets the requirements of 40 CFR 35.3520 
other than the limitation to certain eligible systems under 40 CFR 
35.3520(a).
    (2) Broadband investments--(i) General. Broadband infrastructure if 
the following conditions are met:
    (A) The broadband infrastructure is designed to provide service to 
households and businesses with an identified need, as determined by the 
recipient, for such infrastructure;
    (B) The broadband infrastructure is designed to, upon completion:
    (1) Reliably meet or exceed symmetrical 100 Mbps download speed and 
upload speeds; or
    (2) In cases where it is not practicable, because of the excessive 
cost of the project or geography or topography of the area to be served 
by the project, to provide service reliably meeting or exceeding 
symmetrical 100 Mbps download speed and upload speeds:
    (i) Reliably meet or exceed 100 Mbps download speed and between at 
least 20 Mbps and 100 Mbps upload speed; and
    (ii) Be scalable to a minimum of 100 Mbps download speed and 100 
Mbps upload speed; and
    (C) The service provider for a completed broadband infrastructure 
investment project that provides service to households is required, for 
as long as the SLFRF-funded broadband infrastructure is in use, by the 
recipient to:
    (1) Participate in the Federal Communications Commission's 
Affordable Connectivity Program (ACP) through the lifetime of the ACP; 
or
    (2) Otherwise provide access to a broad-based affordability program 
to low-income consumers in the proposed service area of the broadband 
infrastructure that provides benefits to households commensurate with 
those provided under the ACP through the lifetime of the ACP.
    (ii) Cybersecurity infrastructure investments. Cybersecurity 
infrastructure investments that are designed to improve the reliability 
and resiliency of new and existing broadband infrastructure. Such 
investments may include the addition or modernization of network 
security hardware and software tools designed to strengthen 
cybersecurity for the end-users of these networks.
    (f) Meeting the non-federal matching requirements for Bureau of 
Reclamation projects. A recipient may use funds to meet the non-federal 
matching requirements of any authorized Bureau of Reclamation project.


Sec.  35.7   Pensions.

    A recipient (other than a Tribal government) may not use funds for 
deposit into any pension fund.


Sec.  35.8   Tax.

    (a) Restriction. A State or Territory shall not use funds to either 
directly or indirectly offset a reduction in the net tax revenue of the 
State or Territory resulting from a covered change during the covered 
period.
    (b) Violation. Treasury will consider a State or Territory to have 
used funds to offset a reduction in net tax revenue if, during a 
reporting year:
    (1) Covered change. The State or Territory has made a covered 
change that, either based on a reasonable statistical methodology to 
isolate the impact of the covered change in actual revenue or based on 
projections that use reasonable assumptions and do not incorporate the 
effects of macroeconomic growth to reduce or increase the projected 
impact of the covered change, the State or Territory assesses has had 
or predicts to have the effect of reducing tax revenue relative to 
current law;
    (2) Exceeds the de minimis threshold. The aggregate amount of the 
measured or predicted reductions in tax revenue caused by covered 
changes identified under paragraph (b)(1) of this section, in the 
aggregate, exceeds 1 percent of the State's or Territory's baseline;
    (3) Reduction in net tax revenue. The State or Territory reports a 
reduction in net tax revenue, measured as the difference between actual 
tax revenue and the State's or Territory's baseline, each measured as 
of the end of the reporting year; and
    (4) Consideration of other changes. The aggregate amount of 
measured or predicted reductions in tax revenue caused by covered 
changes is greater than the sum of the following, in each case, as 
calculated for the reporting year:
    (i) The aggregate amount of the expected increases in tax revenue 
caused by one or more covered changes that, either based on a 
reasonable statistical methodology to isolate the impact of the covered 
change in actual revenue or based on projections that use reasonable 
assumptions and do not incorporate the effects of macroeconomic growth 
to reduce or increase the projected impact of the covered change, the 
State or Territory assesses has had or predicts to have the effect of 
increasing tax revenue; and
    (ii) Reductions in spending, up to the amount of the State's or 
Territory's net reduction in total spending, that are in:
    (A) Departments, agencies, or authorities in which the State or 
Territory is not using funds; and
    (B) Departments, agencies, or authorities in which the State or 
Territory is using funds, in an amount equal to the value of the 
spending cuts in those departments, agencies, or authorities, minus 
funds used.
    (c) Amount and revenue reduction cap. If a State or Territory is 
considered to be in violation pursuant to paragraph (b) of this 
section, the amount used in

[[Page 4453]]

violation of paragraph (a) of this section is equal to the lesser of:
    (1) The reduction in net tax revenue of the State or Territory for 
the reporting year, measured as the difference between the State's or 
Territory's baseline and its actual tax revenue, each measured as of 
the end of the reporting year; and,
    (2) The aggregate amount of the reductions in tax revenues caused 
by covered changes identified in paragraph (b)(1) of this section, 
minus the sum of the amounts in identified in paragraphs (b)(4)(i) and 
(ii) of this section.


Sec.  35.9   Compliance with applicable laws.

    A recipient must comply with all other applicable Federal statutes, 
regulations, and executive orders, and a recipient shall provide for 
compliance with the American Rescue Plan Act, this subpart, and any 
interpretive guidance by other parties in any agreements it enters into 
with other parties relating to these funds.


Sec.  35.10   Recoupment.

    (a) Identification of violations--(1) In general. Any amount used 
in violation of Sec.  35.5, 35.6, or 35.7 may be identified at any time 
prior to December 31, 2026.
    (2) Annual reporting of amounts of violations. On an annual basis, 
a recipient that is a State or territory must calculate and report any 
amounts used in violation of Sec.  35.8.
    (b) Calculation of amounts subject to recoupment--(1) In general. 
Except as provided in paragraph (b)(2) of this section, the Secretary 
will calculate any amounts subject to recoupment resulting from a 
violation of Sec.  35.5, 35.6 or 35.7 as the amounts used in violation 
of such restrictions.
    (2) Violations of Sec.  35.8. The Secretary will calculate any 
amounts subject to recoupment resulting from a violation of Sec.  35.8, 
equal to the lesser of:
    (i) The amount set forth in Sec.  35.8(c); and,
    (ii) The amount of funds received by such recipient.
    (c) Initial notice. If the Secretary calculates an amount subject 
to recoupment under paragraph (b) of this section, Treasury will 
provide the recipient an initial written notice of the amount subject 
to recoupment along with an explanation of such amounts.
    (d) Request for reconsideration. Unless the Secretary extends or 
accelerates the time period, within 60 calendar days of receipt of an 
initial notice of recoupment provided under paragraph (c) of this 
section, a recipient may submit a written request to the Secretary 
requesting reconsideration of any amounts subject to recoupment under 
paragraph (b) of this section. To request reconsideration of any 
amounts subject to recoupment, a recipient must submit to the Secretary 
a written request that includes:
    (1) An explanation of why the recipient believes all or some of the 
amount should not be subject to recoupment; and
    (2) A discussion of supporting reasons, along with any additional 
information.
    (e) Final amount subject to recoupment. Unless the Secretary 
extends or accelerates the time period, within 60 calendar days of 
receipt of the recipient's request for reconsideration provided 
pursuant to paragraph (d) of this section or the expiration of the 
period for requesting reconsideration provided under paragraph (d), the 
recipient will be notified of the Secretary's decision to affirm, 
withdraw, or modify the notice of recoupment. Such notification will 
include an explanation of the decision, including responses to the 
recipient's supporting reasons and consideration of additional 
information provided. A recipient must invoke and exhaust the 
procedures available under this subpart prior to seeking judicial 
review of a decision under Sec.  35.10.
    (f) Repayment of funds. Unless the Secretary extends or accelerates 
the time period, a recipient shall repay to the Secretary any amounts 
subject to recoupment in accordance with instructions provided by the 
Secretary:
    (1) Within 120 calendar days of receipt of the notice of recoupment 
provided under paragraph (c) of this section, in the case of a 
recipient that does not submit a request for reconsideration in 
accordance with the requirements of paragraph (d) of this section; or
    (2) Within 120 calendar days of receipt of the Secretary's decision 
under paragraph (e) of this section, in the case of a recipient that 
submits a request for reconsideration in accordance with the 
requirements of paragraph (d) of this section.
    (g) Other remedial actions. Prior to seeking recoupment or taking 
other appropriate action pursuant to paragraph (c), (d), (e), or (f) of 
this section, the Secretary may notify the recipient of potential 
violations and provide the recipient an opportunity for informal 
consultation and remediation.


Sec.  35.11   Payments to States.

    (a) In general. With respect to any State or Territory that has an 
unemployment rate as of the date that it submits an initial 
certification for payment of funds pursuant to section 602(d)(1) of the 
Social Security Act that is less than two percentage points above its 
unemployment rate in February 2020, the Secretary will withhold 50 
percent of the amount of funds allocated under section 602(b) of the 
Social Security Act to such State or territory until at least May 10, 
2022 and not more than twelve months from the date such initial 
certification is provided to the Secretary.
    (b) Payment of withheld amount. In order to receive the amount 
withheld under paragraph (a) of this section, the State or Territory 
must submit to the Secretary the following information:
    (1) A certification, in the form provided by the Secretary, that 
such State or Territory requires the payment to carry out the 
activities specified in section 602(c) of the Social Security Act and 
will use the payment in compliance with section 602(c) of the Social 
Security Act; and
    (2) Any reports required to be filed by that date pursuant to this 
part that have not yet been filed.


Sec.  35.12   Distributions to nonentitlement units of local government 
and units of general local government.

    (a) Nonentitlement units of local government. Each State or 
Territory that receives a payment from the Secretary pursuant to 
section 603(b)(2)(B) of the Social Security Act shall distribute the 
amount of the payment to nonentitlement units of local government in 
such State or Territory in accordance with the requirements set forth 
in section 603(b)(2)(C) of the Social Security Act and without 
offsetting any debt owed by such nonentitlement units of local 
governments against such payments.
    (b) Budget cap. A State or Territory may not make a payment to a 
nonentitlement unit of local government pursuant to section 
603(b)(2)(C) of the Social Security Act and paragraph (a) of this 
section in excess of the amount equal to 75 percent of the most recent 
budget for the nonentitlement unit of local government as of January 
27, 2020. For purposes of this section 35.12, a nonentitlement unit of 
local government's most recent budget shall mean the nonentitlement 
unit of local government's total annual budget, including both 
operating and capital expenditure budgets, in effect as of January 27, 
2020. A State or Territory shall permit a nonentitlement unit of local 
government without a formal budget as of January 27, 2020, to provide a 
certification from an authorized officer of the nonentitlement unit of 
local government of its most recent annual expenditures as of

[[Page 4454]]

January 27, 2020, and a State or Territory may rely on such 
certification for purposes of complying with this section 35.12.
    (c) Units of general local government. Each State or Territory that 
receives a payment from the Secretary pursuant to section 
603(b)(3)(B)(ii) of the Social Security Act, in the case of an amount 
to be paid to a county that is not a unit of general local government, 
shall distribute the amount of the payment to units of general local 
government within such county in accordance with the requirements set 
forth in section 603(b)(3)(B)(ii) of the Social Security Act and 
without offsetting any debt owed by such units of general local 
government against such payments.
    (d) Additional conditions. A State or Territory may not place 
additional conditions or requirements on distributions to 
nonentitlement units of local government or units of general local 
government beyond those required by section 603 of the Social Security 
Act or this subpart.

Jacob Leibenluft,
Chief Recovery Officer.
[FR Doc. 2022-00292 Filed 1-26-22; 8:45 am]
BILLING CODE P