Treasury Issues Final Rule for ARP Funds

 

After a long wait, the U.S. Treasury finally issued the final rule for the State and Local Fiscal Relief Funds provided in the American Rescue Plan. Counties had been operating under the “interim” final rule since last May. Originally anticipated last fall, the Treasury delayed making the rule final due to the high volume of comments and questions they received. Thankfully, there are many provisions in the final version of the rule that are beneficial to counties and provide much needed flexibility. The National Association of Counties was in constant communication with the Treasury Department, elevating questions and concerns they were hearing from state associations and individual counties. 


The biggest change was a dramatic simplification of the lost revenue provisions. Under the final rule, Treasury has said that any local jurisdiction can automatically take a standard allowance of up to $10 million under the revenue loss provisions. For over 60 counties in Tennessee, their total allocation of funds under the American Rescue Plan Act was below that limit. Therefore, they can take their entire allocation as revenue loss. This will then allow a county to use those funds to fund any government services. This would include highway and bridge infrastructure - a category of investment that was previously not allowed under the specific authorized uses of ARP funding. This will also significantly reduce the amount of reporting a county would be required to make to the federal government. It won’t eliminate all reports, but it will make them much simpler. Even if a county wishes to use the funds for other permitted projects like water and wastewater, broadband or premium pay, it may wish to take the standard allowance of up to $10 million as lost revenue to simplify administration of the funds. 


The final rule does maintain certain prohibited uses of the funds. Counties may not use the funds for a deposit to a pension fund. However, if the county is using the funds to pay salaries, this does not prohibit the county from including routine employer contributions to pensions as a part of the employee’s benefits. Since these funds are meant to be used prospectively, counties may not use the funds to pay off debt service or replenish financial reserves. The funds also may not be used to pay settlements or judgments in lawsuits.  


There were other provisions that authorized additional uses of the funds for water and wastewater projects. The interim rule authorized their use for water and wastewater projects that would qualify under state resolving fund guidelines. The final rule still allows the funds to be used for those qualifying projects, plus new authorized uses that include lead remediation, stormwater infrastructure, and aid for private wells and septic units.


As we continue to receive more information about the changes, we will provide updates. For now, one of the best sources of information we can recommend is a 44-page overview of the final rule provided by Treasury which can be found here. The full text of the rule and many other resources can be found on Treasury’s general website for State and Local Fiscal Relief Funds here. The comptroller’s office has also released a memo relative to these changes and the Department of Environment and Conservation has a webinar planned next Tuesday (the 18th) for updates related to these changes and Tennessee’s intended uses of the funds for water and wastewater infrastructure. 


The final rule takes effect April 1, 2022, for rule-making purposes. However, if a county wishes to take advantage of the new flexibility and spend funds between now and that date in accordance with the provisions of the final rule, Treasury has stated that it will not enforce any limits set under the interim rule against any local jurisdiction, as long as the use of the funds is in compliance with the final rule.