The U.S. Treasury kicked off the year by providing the much-welcomed Final Rule for State and Local Fiscal Recovery Funds (SLFRF) on January 6, with final guidance on allowable uses, documentation, and reporting requirements. This replaces the interim Final Rule issued in May 2021.

Overall, the final rule affords greater flexibility and simplicity largely in response to feedback received during the comment process. An overview of the final rule was issued by the U.S. Treasury. Key changes and clarifications, which undoubtedly give local leaders peace of mind to move ahead, include:

• Replacing Lost Public Sector Revenue: The final rule makes it easier to calculate lost revenue, with a standard allowance of $10 million. This is in lieu of determining an allowance using a revenue loss calculation. Recipients that select the standard allowance may use that amount – in many cases their full award – for government services, with streamlined reporting requirements.
• Broader Use of Funds: The final rule clarifies that funds can be used 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. In addition, eligible programs and services are expanded to include childcare, early learning, and services to address learning loss during the pandemic in impacted communities, as well as certain community development and neighborhood revitalization activities for disproportionately impacted communities.
• Presumes Broader Impact without Analysis: With the final rule presuming an expanded set of households and communities to be “impacted” and “disproportionately impacted” by the pandemic, the need for additional analysis has been eliminated.
• Government Hiring: 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.
• Premium Pay: The final rule delivers more streamlined options to provide premium pay, by broadening the share of eligible workers who can receive premium pay without a written justification while maintaining a focus on lower-income and frontline workers performing essential work.
• Water, Sewer & 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 broader range of lead remediation and stormwater management projects.

While the final rule takes effect April 1, 2022, recipients can choose to take advantage of its flexibilities and simplifications now, even ahead of the effective date. Treasury will not take action to enforce the interim final rule to the extent that a use of funds is consistent with the terms of the final rule, regardless of when the SLFRF funds were used. (For more information on compliance, consult the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule, on the U.S. Treasury’s website.)

For many, the final rule is a green light to move full speed ahead. Remember, December 31, 2024, is the last day funds can be spent (although that extends to December 31, 2026, for contracts finalized by December 31, 2024). If you have questions or need assistance, please contact RBT CPA professionals dedicated to helping government clients.