In a previous article, I discussed the enactment of the American Rescue Plan Act of 2021 (“ARPA”), which provides for almost two trillion dollars of new federal spending to combat the ongoing impact of the COVID-19 Pandemic. ARPA provided approximately $350 Billion of new funding to tribal governments, states, territories, and local governments, $14 Billion of which was estimated to be received by Pennsylvania and its municipalities. Initial federal ARPA funding to the states and their political subdivisions was estimated to begin as early as May.
By now, Pennsylvania and its municipalities have received at least a portion of their ARPA funds. But what can they do with it? On May 17, 2021, the United States Department of the Treasury (the “Department”) published an interim final rule providing guidance to recipients on the use of ARPA funds. Consistent with ARPA, the Department in the interim final rule established four broad categories of authorized spending, (i) Public Health and Economic Impacts; (ii) Premium Pay; (iii) Revenue Loss; and (iv) Investments in Infrastructure. Each of these categories is discussed below.
Public Health and Economic Impacts
The Department provides that recipients of ARPA funds may use the funds generally “to respond to the public health emergency or its negative economic impacts” related to COVID-19. The Department then provides as examples, twelve broad types of spending that would qualify as being in response to the public health emergency or its negative economic impacts: (1) COVID-19 response and prevention; (2) Payroll and benefit expenses for public health and safety staff; (3) Payroll and benefit expenses for state and local government staff (but only up to pre-Pandemic levels); (4) Unemployment assistance; (5) Contributions to Unemployment Insurance trust fund to replenish such funds up to pre-Pandemic levels; (6) Small Business assistance; (7) Nonprofit assistance; (8) Direct household assistance (i.e., cash payments); (9) Targeted aid to tourism, travel, hospitality and other impacted industries; (10) Administrative expenses associated with any COVID-19 response programs; (11) Survivors’ benefits (i.e., cash payments); and (12) Aid to “disproportionately impacted populations and communities.”
Most of these examples are self-explanatory (although the Department does provide detailed explanations for certain of the examples). It is worth taking a deeper dive into what constitutes aid to “disproportionately impacted populations and communities.” The Department in announcing the publication of the interim final rule recognized that economic disparities that existed prior to the COVID-19 Pandemic amplified the impact of the Pandemic among low-income and minority groups.
The Department stated, “these families were more likely to face housing, food, and financial security; are over-represented among low-wage workers; and many have seen their livelihoods deteriorate further during the pandemic and economic contraction.” In recognition of these disparate impacts, the Department in the interim final rule identifies services and programs that will be presumed to be responding to the negative economic impacts of the COVID-19 public health emergency when provided in these communities. This presumption is a powerful encouragement for recipients to direct ARPA funds to those communities that were hardest-hit by the Pandemic’s economic toll.
The specific services and programs identified include: (i) Programs or services that facilitate access to health and social services, (ii) Programs or services that address housing insecurity, lack of affordable housing, or homelessness, (iii) Programs or services that address or mitigate the impacts of the COVID-19 public health emergency on education, and (iv) Programs or services that address or mitigate the impacts of the COVID-19 public health emergency on childhood health or welfare. Additional guidance on the permitted scope of the programs or services is provided in the interim final rule.
The Department also provides that recipients of ARPA funds may use the funds to provide premium pay to “eligible workers” who perform essential work during the COVID-19 public health emergency. An eligible worker can be employed by the governmental recipient of the funding or a private employer. A recipient may prioritize low and moderate income workers when determining to establish a program of premium pay. Premium pay that results in a worker’s total compensation exceeding 150% of the State or county average annual wage (which is higher) is strongly discouraged.
“Eligible workers” is broadly defined in the interim final rule to mean “workers needed to maintain continuity of operations of essential critical infrastructure sectors,” including such sectors as health care, sanitation, emergency response, grocery stores, restaurants, food production and delivery, child and family care, social services, education, and many others.
However, premium pay is limited to an amount up to $13 per hour (not to exceed $25,000 per employee) and may only be awarded for “essential work.” The nature of the work performed does not establish whether it is “essential” – rather, it is the setting and the nature of the interactions occurring at the setting that will determine whether work is “essential.” The work must be performed in-person (no remote work will qualify), and the work must involve either (i) in-person interactions with patients, the public or co-workers, or (ii) regular physical handling of items handled by patients, the public or co-workers.
The Department also provides that recipients of ARPA funds may use the funds to pay for “government services” up to the extent of a general revenue loss arising from the Pandemic. The interim final rule sets forth a calculation methodology that must be explicitly followed in determining the amount of a recipient’s general revenue loss. Revenue loss must be calculated on four separate occasions – December 31 of the years 2020, 2021, 2022, and 2023. The Department outlines a four-step process to be used in calculating revenue loss; thankfully, trade associations representing key public entities, such as the Government Finance Officers Association, have already announced the creation of revenue replacement calculators modeled after the guidance, making it relatively easy for recipients to plug in the numbers.
ARPA funds identified as covering a revenue loss must still be used for “government services.” While this term is not defined in the text of the interim final rule, the Department in its accompanying guidance stated that government services include, but are not limited to, “maintenance or pay-go funded building 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.” However, the term does not include payment of principal and/or interest on outstanding indebtedness, or satisfaction of obligations under judgments or settlement agreements.
Investments in Infrastructure
Finally, ARPA also authorized the use of funds to make investments in water, sewer, and broadband infrastructure. In implementing this portion of ARPA through the interim final rule, the Department created two categories of permitted “infrastructure investments” – (i) infrastructure projects that qualify for funding under a state’s water pollution revolving loan fund established under the Federal Water Pollution Control Act or a state’s drinking water treatment revolving loan fund under the Federal Safe Drinking Water Act; and (ii) broadband infrastructure projects targeted at unserved or underserved households and businesses. A broadband infrastructure project will only qualify for funding if it meets a minimum symmetrical 100 Mbps download and upload speed, or is scalable to these levels and will immediately produce at least a 100 Mbps download/20 Mbps upload speed.
The Department’s interim final rule was the subject of a public comment period that recently ended on July 16, 2021 and for which over 1,500 comments were submitted. As the interim final rule is “final” in all respects despite the “interim” qualifier, it is unclear how the Department intends to act on the comments it received. The Department regularly updates a FAQ page at its Coronavirus State and Local Fiscal Recovery Funds Website to provide additional guidance on the use of ARPA funds, however, and readers are encouraged to bookmark the website in the event additional guidance is forthcoming.
ARPA funds must be obligated for expenditure by December 31, 2024 and spent by December 31, 2025. Any funds not so spent must be returned to the Department.
Reprinted with permission from the July 29, 2021 edition of The Legal Intelligencer © 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.