Ten months after the passage of the $1.9 trillion American Rescue Plan Act (ARP), local authorities across the United States continue to have significant opportunities to deploy the law’s $350 billion in flexible state and local fiscal stimulus funds (SLRFF) to address critical priorities . And last week, these leaders received the latest advice on how to use this massive investment to build an inclusive future for their communities.
In May 2021, the U.S. Treasury Department released an interim final rule setting out permitted uses of the SLFRF and invited local authorities and other experts to provide feedback. It provided national and local authorities with guidance on four legally mandated uses: responding to the economic and public health impacts of COVID-19; provide a salary bonus; investing in water, sewer and broadband infrastructure; and replace lost public sector revenue.
Subsequently, cities, counties and states released preliminary reports detailing how they intended to use SLFRF dollars. However, as we observed last fall, the absence of a final rule from the Treasury on the implementation of the program may have discouraged some cities from making firm decisions about how they would use their allocations. funds, as they were awaiting clarifications or assurances regarding eligible activities.
So it was good news on January 6 when the Treasury published the final rule of the SLFRF, which will officially come into force on April 1, 2022. The final rule provides useful clarifications in certain areas (including a useful overview of the Treasury) and substantial extensions of eligible activities. at the others. Importantly, if an activity was eligible under the interim rule, it almost certainly remains eligible under the final rule.
Notably, the final rule provides local officials with important new guidance on the use of funds to support public sector operations. This includes establishing a floor of $10 million to classify funds as income replacement – most relevant for smaller jurisdictions – and allowing recipients to hire or rehire government employees above levels. pre-pandemic base. (The National League of Cities [NLC] highlighted 10 important takeaways from the new rule for municipal leaders and the National Association of Counties [NACo] provided a detailed breakdown of what’s new and notable in the rule.)
As we have seen throughout the past year, many major cities and counties remain keen to use SLFRF dollars to not only provide needed assistance to families and communities still suffering from the impacts of COVID. -19, but also to invest in people and places to address pre-existing challenges that exacerbate the negative effects of the pandemic. We will explore these priorities in a new Local Rescue Plan Tracker, launched in late January in partnership with NLC and NACo. For now, the final rule provides helpful direction and encourages local leaders to invest in the present and future of low-income families and communities.
State and local governments can provide a range of economic relief to affected people and places
The Treasury’s final rule provides further clarification on eligible recipients of SLFRF economic assistance. In general, states and localities can only provide aid to individuals and households who have suffered economically due to the pandemic. As the interim rule pointed out, evidence abounds that low-income people and places suffered negative economic impacts from the pandemic, both because they worked in jobs more vulnerable to public health measures ( for example, hospitality and retail) and because they had pre-existing challenges that exacerbated the toll of the pandemic (for example, substandard housing, lack of reliable internet access or high-quality healthcare) .
While states and localities generally must document that recipients of SLFRF economic assistance have suffered as a result of the pandemic, the Treasury’s final rule states that they can presume these impacts for low- and middle-income people ( those in families whose income is less than 300% of the federal poverty line, or about $66,000 for a family of three), as well as those eligible for certain federal benefits such as Medicaid, the Medicare program (CHIP) or child care subsidies. For these individuals and households, the final rule lists a range of types of assistance that states and localities can use SLFRF dollars to provide, such as food, shelter, health insurance, job training, financial services, child care, broadband grants and cash assistance. . Essentially, most state or local programs that provide direct economic assistance to low-income people are an eligible use of the SLFRF.
The interim rule identified an additional category of individuals and communities who have suffered “disproportionate” negative impacts from the pandemic due to underlying economic distress. The final rule clarifies that to help these people and places, states and localities can make eligible SLFRF investments in local services and the physical environment, including medical clinics and community health workers; elimination of lead paint and other environmental remediation measures; improvements to vacant land and properties; and school facilities and services. These households and communities must have incomes (or median incomes, in the case of neighborhoods) below 185% of the federal poverty level, or approximately $40,000. The final rule maintains the simplifying assumption of the interim rule that all households living in qualifying census tracts (QCTs) were disproportionately impacted.
Thus, many types of investments that occur under the rubric of “community economic development” are eligible uses of the SLFRF, although recipients must provide additional documentation to the Treasury regarding major capital expenditures. In this way, the final rule gives the green light to local authorities looking to invest in the long-term economic revitalization of low-income neighborhoods.
States and localities have increased leeway to invest in small business recovery, especially in low-income neighborhoods
Many SLFRF recipients have already dedicated a portion of their funds to help small businesses that have lost significant revenue during the pandemic. Detroit and Louisville, Ky., among many other cities, have committed substantial SLFRF assistance for small business recovery.
For small business relief, the Treasury SLFRF final rule clarifies a heading similar to that for individuals, households and communities. “Hit” small businesses and nonprofits include those that have experienced reduced revenue, increased costs, or other cost issues (rent, payroll, etc.) due to the pandemic. States and localities can provide grants, loans, and technical assistance through the SLFRF to small businesses that can demonstrate such impacts.
State and local programs that distribute SLFRF dollars may further assume that small businesses and nonprofits have been “disproportionately affected” by the pandemic if they are located in QCTs. Similar to economic relief for disproportionately affected people and places, states and localities can invest in the physical rehabilitation of these businesses and nonprofits, and the corridors in which they are concentrated.
For micro-enterprises (businesses with five or fewer employees, which have grown significantly during the pandemic), authorities may provide grants to offset costs such as transportation and childcare. And recognizing the pre-existing barriers to business creation and success in these neighborhoods, they can also support small business start-up and expansion costs. In this way, SLFRF dollars can “scale up” support for entrepreneurs in low-income communities, building on complementary ARP programs such as the state’s Small Business Credit Initiative.
It’s time for state and local leaders to act
Uncertainty about where the final rules would land on several key issues — and when the COVID-19 pandemic would abate — understandably led many cities and counties to delay committing ARP dollars. Indeed, this uncertainty remains regarding the prevalence of COVID-19.
Nonetheless, the arrival of the Treasury’s final rule means the time has come for cities, counties and states to commit to comprehensive relief and reconstruction plans aided by SLFRF dollars. Time is running out: The rule upholds the statutory directive that recipients must commit the funds by the end of 2024 and expend them in full by the end of 2026. Despite some local hopes to the contrary, it does not allow states and localities to deposit the funds in revolving finance vehicles that would extend their impact farther into the future (although they could use SLFRF funds to cover the subsidy costs of longer-term loans issued by revolving vehicles) .
As Brookings Metro argued in a recent article, the ARP opportunity is now knocking for local governments. Strategic jurisdictions will use this opportunity to select a limited number of areas for lasting and transformative impact, leveraging relationships and building capacity both inside and outside of government to foster enabling conditions. a broad and fair recovery. The moment demands no less.