[Federal Register Volume 86, Number 93 (Monday, May 17, 2021)]
[Rules and Regulations]
[Pages 26786-26824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-10283]



[[Page 26785]]

Vol. 86

Monday,

No. 93

May 17, 2021

Part II





Department of the Treasury





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31 CFR Part 35





Coronavirus State and Local Fiscal Recovery Funds; Interim Final Rule

  Federal Register / Vol. 86, No. 93 / Monday, May 17, 2021 / Rules and 
Regulations  

[[Page 26786]]


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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: Interim final rule.

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SUMMARY: The Secretary of the Treasury (Treasury) is issuing this 
interim final rule to implement the Coronavirus State Fiscal Recovery 
Fund and the Coronavirus Local Fiscal Recovery Fund established under 
the American Rescue Plan Act.

DATES: Effective date: The provisions in this interim final rule are 
effective May 17, 2021.
    Comment date: Comments must be received on or before July 16, 2021. 
ADDRESSES: Please submit comments electronically through the Federal 
eRulemaking Portal: http://www.regulations.gov. Comments can be mailed 
to the Office of the Undersecretary for Domestic Finance, Department of 
the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220. 
Because postal mail may be subject to processing delay, it is 
recommended that comments be submitted electronically. All comments 
should be captions with ``Coronavirus State and Local Fiscal Recovery 
Funds Interim Final Rule Comments.'' Please include your name, 
organization affiliation, address, email address and telephone number 
in your comment. Where appropriate, a comment should include a short 
executive summary.
    In general, comments received will be posted on http://www.regulations.gov without change, including any business or personal 
information provided. Comments received, including attachments and 
other supporting materials, will be part of the public record and 
subject to public disclosure. Do not enclose any information in your 
comment or supporting materials that you consider confidential or 
inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Katharine Richards, Senior Advisor, 
Office of Recovery Programs, Department of the Treasury, (844) 529-
9527.

SUPPLEMENTARY INFORMATION: 

I. Background Information

A. Overview

    Since the first case of coronavirus disease 2019 (COVID-19) was 
discovered in the United States in January 2020, the disease has 
infected over 32 million and killed over 575,000 Americans.\1\ The 
disease has impacted every part of life: As social distancing became a 
necessity, businesses closed, schools transitioned to remote education, 
travel was sharply reduced, and millions of Americans lost their jobs. 
In April 2020, the national unemployment rate reached its highest level 
in over seventy years following the most severe month-over-month 
decline in employment on record.\2\ As of April 2021, there were still 
8.2 million fewer jobs than before the pandemic.\3\ During this time, a 
significant share of households have faced food and housing 
insecurity.\4\ Economic disruptions impaired the flow of credit to 
households, State and local governments, and businesses of all 
sizes.\5\ As businesses weathered closures and sharp declines in 
revenue, many were forced to shut down, especially small businesses.\6\
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    \1\ Centers for Disease Control and Prevention, COVID Data 
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited May 8, 2021).
    \2\ U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE], 
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE, May 3, 2021. U.S. Bureau of Labor 
Statistics, Employment Level [LNU02000000], retrieved from FRED, 
Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNU02000000, May 3, 2021.
    \3\ 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, May 7, 2021.
    \4\ Nirmita Panchal et al., The Implications of COVID-19 for 
Mental Health and Substance Abuse (Feb. 10, 2021), https://
www.kff.org/coronavirus-covid-19/issue-brief/the-implications-of-
covid-19-for-mental-health-and-substance-use/
#:~:text=Older%20adults%20are%20also%20more,prior%20to%20the%20curren
t%20crisis; U.S. Census Bureau, Household Pulse Survey: Measuring 
Social and Economic Impacts during the Coronavirus Pandemic, https://www.census.gov/programs-surveys/household-pulse-survey.html (last 
visited Apr. 26, 2021); 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.
    \5\ Board of Governors of the Federal Reserve System, Monetary 
Policy Report (June 12, 2020), https://www.federalreserve.gov/monetarypolicy/2020-06-mpr-summary.htm.
    \6\ Joseph R. Biden, Remarks by President Biden on Helping Small 
Businesses (Feb. 22, 2021), https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/22/remarks-by-president-biden-on-helping-small-businesses/.
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    Amid this once-in-a-century crisis, State, territorial, Tribal, and 
local governments (State, local, and Tribal governments) have been 
called on to respond at an immense scale. Governments have faced myriad 
needs to prevent and address the spread of COVID-19, including testing, 
contact tracing, isolation and quarantine, public communications, 
issuance and enforcement of health orders, expansions to health system 
capacity like alternative care facilities, and in recent months, a 
massive nationwide mobilization around vaccinations. Governments also 
have supported major efforts to prevent COVID-19 spread through safety 
measures in settings like nursing homes, schools, congregate living 
settings, dense worksites, incarceration settings, and public 
facilities. The pandemic's impacts on behavioral health, including the 
toll of pandemic-related stress, have increased the need for behavioral 
health resources.
    At the same time, State, local and Tribal governments launched 
major efforts to address the economic impacts of the pandemic. These 
efforts have been tailored to the needs of their communities and have 
included expanded assistance to unemployed workers; food assistance; 
rent, mortgage, and utility support; cash assistance; internet access 
programs; expanded services to support individuals experiencing 
homelessness; support for individuals with disabilities and older 
adults; and assistance to small businesses facing closures or revenue 
loss or implementing new safety measures.
    In responding to the public health emergency and its negative 
economic impacts, State, local, and Tribal governments have seen 
substantial increases in costs to provide these services, often amid 
substantial declines in revenue due to the economic downturn and 
changing economic patterns during the pandemic.\7\ Facing these budget 
challenges, many State, local, and Tribal governments have been forced 
to make cuts to services or their workforces, or delay critical 
investments. From February to May of 2020, State, local, and Tribal 
governments reduced their workforces by more than 1.5 million jobs and, 
in April of 2021, State, local, and Tribal government employment 
remained nearly 1.3 million jobs below pre-pandemic levels.\8\ These 
cuts to State, local, and Tribal government workforces

[[Page 26787]]

come at a time when demand for government services is high, with State, 
local, and Tribal governments on the frontlines of fighting the 
pandemic. Furthermore, State, local, and Tribal government austerity 
measures can hamper overall economic growth, as occurred in the 
recovery from the Great Recession.\9\
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    \7\ Michael Leachman, House Budget Bill Provides Needed Fiscal 
Aid for States, Localities, Tribal Nations, and Territories (Feb. 
10, 2021), https://www.cbpp.org/research/state-budget-and-tax/house-budget-bill-provides-needed-fiscal-aid-for-states-localities.
    \8\ 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 May 8, 2021).
    \9\ 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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    Finally, although the pandemic's impacts have been widespread, both 
the public health and economic impacts of the pandemic have fallen most 
severely on communities and populations disadvantaged before it began. 
Low-income communities, people of color, and Tribal communities have 
faced higher rates of infection, hospitalization, and death,\10\ as 
well as higher rates of unemployment and lack of basic necessities like 
food and housing.\11\ Pre-existing social vulnerabilities magnified the 
pandemic in these communities, where a reduced ability to work from 
home and, frequently, denser housing amplified the risk of infection. 
Higher rates of pre-existing health conditions also may have 
contributed to more severe COVID-19 health outcomes.\12\ Similarly, 
communities or households facing economic insecurity before the 
pandemic were less able to weather business closures, job losses, or 
declines in earnings and were less able to participate in remote work 
or education due to the inequities in access to reliable and affordable 
broadband infrastructure.\13\ Finally, though schools in all areas 
faced challenges, those in high poverty areas had fewer resources to 
adapt to remote and hybrid learning models.\14\ Unfortunately, the 
pandemic also has reversed many gains made by communities of color in 
the prior economic expansion.\15\
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    \10\ 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.
    \11\ 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-recessions-effects-on-housing-and (last visited May 4, 
2021).
    \12\ Lisa R. Fortuna et al., Inequity and the Disproportionate 
Impact of COVID-19 on Communities of Color in the United States: The 
Need for Trauma-Informed Social Justice Response, Psychological 
Trauma Vol. 12(5):443-45 (2020), available at https://psycnet.apa.org/fulltext/2020-37320-001.pdf.
    \13\ Emily Vogles et al., 53% of Americans Say the internet Has 
Been Essential During the COVID-19 Outbreak (Apr. 30, 2020), https://www.pewresearch.org/internet/2020/04/30/53-of-americans-say-the-internet-has-been-essential-during-the-covid-19-outbreak/.
    \14\ Emma Dorn et al., COVID-19 and student learning in the 
United States: The hurt could last a lifetime (June 2020), https://webtest.childrensinstitute.net/sites/default/files/documents/COVID-19-and-student-learning-in-the-United-States_FINAL.pdf; Andrew 
Bacher-Hicks et al., Inequality in Household Adaptation to Schooling 
Shocks: Covid-Induced Online Engagement in Real Time, J. of Public 
Econ. Vol. 193(C) (July 2020), available at https://www.nber.org/papers/w27555.
    \15\ See, e.g., Tyler Atkinson & Alex Richter, Pandemic 
Disproportionately Affects Women, Minority Labor Force 
Participation, https://www.dallasfed.org/research/economics/2020/1110 (last visited May 9, 2021); Jared Bernstein & Janelle Jones, 
The Impact of the COVID19 Recession on the Jobs and Incomes of 
Persons of Color, https://www.cbpp.org/sites/default/files/atoms/files/6-2-20bud_0.pdf (last visited May 9, 2021).
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B. The Statute and Interim Final Rule

    On March 11, 2021, the American Rescue Plan Act (ARPA) was signed 
into law by the President.\16\ Section 9901 of ARPA amended Title VI of 
the Social Security Act \17\ (the Act) to add section 602, which 
establishes the Coronavirus State Fiscal Recovery Fund, and section 
603, which establishes the Coronavirus Local Fiscal Recovery Fund 
(together, the Fiscal Recovery Funds).\18\ The Fiscal Recovery Funds 
are intended to provide support to State, local, and Tribal governments 
(together, recipients) in responding to the impact of COVID-19 and in 
their efforts to contain COVID-19 on their communities, residents, and 
businesses. The Fiscal Recovery Funds build on and expand the support 
provided to these governments over the last year, including through the 
Coronavirus Relief Fund (CRF).\19\
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    \16\ American Rescue Plan Act of 2021 (ARPA), sec. 9901, Public 
Law 117-2, codified at 42 U.S.C. 802 et seq. The term ``state'' as 
used in this SUPPLEMENTARY INFORMATION and defined in section 602 of 
the Act means each of the 50 States and the District of Columbia. 
The term ``territory'' as used in this SUPPLEMENTARY INFORMATION and 
defined in section 602 of the Act means the Commonwealth of Puerto 
Rico, the United States Virgin Islands, Guam, the Commonwealth of 
Northern Mariana Islands, and American Samoa. Tribal government is 
defined in the Act and the interim final rule to mean ``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 most recently as of the date 
of enactment of the [American Rescue Plan Act] pursuant to section 
104 of the Federally Recognized Indian Tribe List Act of 1994 (25 
U.S.C. 5131).'' See section 602(g)(7) of the Social Security Act, as 
added by the American Rescue Plan Act. On January 29, 2021, the 
Bureau of Indian Affairs published a current list of 574 Tribal 
entities. See 86 FR 7554, January 29, 2021. The term ``local 
governments'' as used in this SUPPLEMENTARY INFORMATION includes 
metropolitan cities, counties, and nonentitlement units of local 
government.
    \17\ 42 U.S.C. 801 et seq.
    \18\ Sections 602, 603 of the Act.
    \19\ The CRF was established by the section 601 of the Act as 
added by the Coronavirus Aid, Relief, and Economic Security Act 
(CARES Act), Public Law 116-136, 134 Stat. 281 (2020).
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    Through the Fiscal Recovery Funds, Congress provided State, local, 
and Tribal governments with significant resources to respond to the 
COVID-19 public health emergency and its economic impacts through four 
categories of eligible uses. Section 602 and section 603 contain the 
same 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. Sections 
602(c)(1) and 603(c)(1) provide that funds may be used:
    (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 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 clarified two types of uses which do not fall 
within these four categories. Sections 602(c)(2)(B) and 603(c)(2) 
provide that these eligible uses do not include, and thus funds may not 
be used for, depositing funds into any pension fund. Section 
602(c)(2)(A) also provides, for States and territories, that the 
eligible uses do not include ``directly or indirectly offset[ting] a 
reduction in the net tax revenue of [the] State or territory resulting 
from a change in law, regulation, or administrative interpretation.''
    The ARPA provides a substantial infusion of resources to meet 
pandemic response needs and rebuild a stronger, more equitable economy 
as the country recovers. First, payments from the Fiscal Recovery Funds 
help to ensure that State, local, and Tribal governments have the 
resources needed to continue to take actions to decrease the spread of 
COVID-19 and bring the pandemic under control. Payments from the Fiscal 
Recovery Funds may also be used by recipients to provide support for 
costs incurred in addressing public health and economic challenges 
resulting from the pandemic, including resources to offer premium pay 
to essential workers, in recognition of their sacrifices over the

[[Page 26788]]

last year. Recipients may also use payments from the Fiscal Recovery 
Funds to replace State, local, and Tribal government revenue lost due 
to COVID-19, helping to ensure that governments can continue to provide 
needed services and avoid cuts or layoffs. Finally, these resources lay 
the foundation for a strong, equitable economic recovery, not only by 
providing immediate economic stabilization for households and 
businesses, but also by addressing the systemic public health and 
economic challenges that may have contributed to more severe impacts of 
the pandemic among low-income communities and people of color.
    Within the eligible use categories outlined in the Fiscal Recovery 
Funds provisions of ARPA, State, local, and Tribal governments have 
flexibility to determine how best to use payments from the Fiscal 
Recovery Funds to meet the needs of their communities and populations. 
The interim final rule facilitates 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 uses 
that State, local, and Tribal governments may consider. These uses 
build on eligible expenditures under the CRF, including some expansions 
in eligible uses to respond to the public health emergency, such as 
vaccination campaigns. They also reflect changes in the needs of 
communities, as evidenced by, for example, nationwide data 
demonstrating disproportionate impacts of the COVID-19 public health 
emergency on certain populations, geographies, and economic sectors. 
The interim final rule takes into consideration these disproportionate 
impacts by recognizing a broad range of eligible uses to help States, 
local, and Tribal governments support the families, businesses, and 
communities hardest hit by the COVID-19 public health emergency.
    Implementation of the Fiscal Recovery Funds also reflect the 
importance of public input, transparency, and accountability. Treasury 
seeks comment on all aspects of the interim final rule and, to better 
facilitate public comment, has included specific questions throughout 
this SUPPLEMENTARY INFORMATION. Treasury encourages State, local, and 
Tribal governments in particular to provide feedback and to engage with 
Treasury regarding issues that may arise regarding all aspects of this 
interim final rule and Treasury's work in administering the Fiscal 
Recovery Funds. In addition, the interim final rule establishes certain 
regular reporting requirements, including by requiring State, local, 
and Tribal governments to publish information regarding uses of Fiscal 
Recovery Funds payments in their local jurisdiction. These reporting 
requirements reflect the need for transparency and accountability, 
while recognizing and minimizing the burden, particularly for smaller 
local governments. Treasury urges State, territorial, Tribal, and local 
governments to engage their constituents and communities in developing 
plans to use these payments, given the scale of funding and its 
potential to catalyze broader economic recovery and rebuilding.

II. Eligible Uses

A. Public Health and Economic Impacts

    Sections 602(c)(1)(A) and 603(c)(1)(A) provide significant 
resources for State, territorial, Tribal governments, and counties, 
metropolitan cities, and nonentitlement units of local governments 
(each referred to as a recipient) to meet the wide range of public 
health and economic impacts of the COVID-19 public health emergency.
    These provisions authorize the use of payments from the Fiscal 
Recovery Funds to respond to the public health emergency with respect 
to COVID-19 or its negative economic impacts. Section 602 and section 
603 also describe several types of uses that would be responsive to the 
impacts of the COVID-19 public health emergency, including assistance 
to households, small businesses, and nonprofits and aid to impacted 
industries, such as tourism, travel, and hospitality.\20\
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    \20\ Sections 602(c)(1)(A), 603(c)(1)(A) of the Act.
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    Accordingly, to assess whether a program or service is included in 
this category of eligible uses, a recipient should consider whether and 
how the use would respond to the COVID-19 public health emergency. 
Assessing whether a program or service ``responds to'' the COVID-19 
public health emergency requires the recipient 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. While the COVID-19 public 
health emergency affected many aspects of American life, eligible 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 interim final rule implements these provisions by identifying a 
non-exclusive list of programs or services that may be funded as 
responding to COVID-19 or the negative economic impacts of the COVID-19 
public health emergency, along with considerations for evaluating other 
potential uses of the Fiscal Recovery Funds not explicitly listed. The 
interim final rule also provides flexibility for recipients to use 
payments from the Fiscal Recovery Funds for programs or services that 
are not identified on these non-exclusive lists but that fall under the 
terms of section 602(c)(1)(A) or 603(c)(1)(A) by responding to the 
COVID-19 public health emergency or its negative economic impacts. As 
an example, in determining whether a program or service responds to the 
negative economic impacts of the COVID-19 public health emergency, the 
interim final rule provides that payments from the Fiscal Recovery 
Funds should be designed to address an economic harm resulting from or 
exacerbated by the public health emergency. Recipients should assess 
the connection between the negative economic harm and the COVID-19 
public health emergency, the nature and extent of that harm, and how 
the use of this funding would address such harm.
    As discussed, the pandemic and the necessary actions taken to 
control the spread had a severe impact on households and small 
businesses, including in particular low-income workers and communities 
and people of color. While eligible uses under sections 602(c)(1)(A) 
and 603(c)(1)(A) provide flexibility to recipients to identify the most 
pressing local needs, Treasury encourages recipients to provide 
assistance to those households, businesses, and non-profits in 
communities most disproportionately impacted by the pandemic.
1. Responding to COVID-19
    On January 21, 2020, the Centers for Disease Control and Prevention 
(CDC) identified the first case of novel coronavirus in the United 
States.\21\ By late March, the virus had spread to many States and the 
first wave was growing rapidly, centered in the northeast.\22\ This 
wave brought acute

[[Page 26789]]

strain on health care and public health systems: Hospitals and 
emergency medical services struggled to manage a major influx of 
patients; response personnel faced shortages of personal protective 
equipment; testing for the virus was scarce; and congregate living 
facilities like nursing homes and prisons saw rapid spread. State, 
local, and Tribal governments mobilized to support the health care 
system, issue public health orders to mitigate virus spread, and 
communicate safety measures to the public. The United States has since 
faced at least two additional COVID-19 waves that brought many similar 
challenges: The second in the summer, centered in the south and 
southwest, and a wave throughout the fall and winter, in which the 
virus reached a point of uncontrolled spread across the country and 
over 3,000 people died per day.\23\ By early May 2021, the United 
States has experienced over 32 million confirmed COVID-19 cases and 
over 575,000 deaths.\24\
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    \21\ 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.
    \22\ Anne Schuchat et al., Public Health Response to the 
Initiation and Spread of Pandemic COVID-19 in the United States, 
February 24-April 21, 2021, MMWR Morb Mortal Wkly Rep 2021, 
69(18):551-56 (May 8, 2021), https://www.cdc.gov/mmwr/volumes/69/wr/mm6918e2.htm.
    \23\ 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 May 8, 2021).
    \24\ Id.
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    Mitigating the impact of COVID-19, including taking actions to 
control its spread and support hospitals and health care workers caring 
for the sick, continues to require a major public health response from 
State, local and Tribal governments. New or heightened public health 
needs include COVID-19 testing, major expansions in 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 implementing infection prevention 
measures or making ventilation improvements in congregate settings, 
health care settings, or other key locations.
    Other response and adaptation costs include 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. In recent months, State, local, and Tribal governments across 
the country have mobilized to support the national vaccination 
campaign, resulting in over 250 million doses administered to date.\25\
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    \25\ 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 May 8, 
2021).
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    The need for public health measures to respond to COVID-19 will 
continue in the months and potentially years to come. This includes the 
continuation of the vaccination campaign for the general public and, if 
vaccinations are approved for children in the future, eventually for 
youths. This also includes monitoring the spread of COVID-19 variants, 
understanding the impact of these variants (especially on vaccination 
efforts), developing approaches to respond to those variants, and 
monitoring global COVID-19 trends to understand continued risks to the 
United States. 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 millions of Americans who have been infected.
    Other areas of public health have also been negatively impacted by 
the COVID-19 pandemic. For example, in one survey 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.\26\\,\ The 
proportion of children's emergency department visits related to mental 
health has also risen noticeably.\27\ Similarly, rates of substance 
misuse and overdose deaths have spiked: Preliminary data from the CDC 
show a nearly 30 percent increase in drug overdose mortality from 
September 2019 to September 2020.\28\ Stay-at-home orders and other 
pandemic responses may have also reduced the ability of individuals 
affected by domestic violence to access services.\29\ Finally, some 
preventative public health measures like childhood vaccinations have 
been deferred and potentially forgone.\30\
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    \26\ Panchal, supra note 4; 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.
    \27\ Leeb, supra note 4.
    \28\ 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, 2021).
    \29\ Megan L. Evans, et al., A Pandemic within a Pandemic--
Intimate Partner Violence during Covid-19, N. Engl. J. Med. 
383:2302-04 (Dec. 10, 2020), available at https://www.nejm.org/doi/full/10.1056/NEJMp2024046.
    \30\ Jeanne M. Santoli et al., Effects of the COVID-19 Pandemic 
on Routine Pediatric Vaccine Ordering and Administration--United 
States, Morb. Mortal. Wkly. Rep. 69(19):591-93 (May 8, 2020), 
https://www.cdc.gov/mmwr/volumes/69/wr/mm6919e2.htm; Marisa Langdon-
Embry et al., Notes from the Field: Rebound in Routine Childhood 
Vaccine Administration Following Decline During the COVID-19 
Pandemic--New York City, March 1-June 27, 2020, Morb. Mortal. Wkly. 
Rep. 69(30):999-1001 (Jul. 31 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6930a3.htm.
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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.\31\ 
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.\32\
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    \31\ 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.
    \32\ 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 Romano, 
supra note 10.
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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 223 
deaths per 100,000 compared to the U.S. average of 175 deaths per 
100,000, as of May 2021.\33\ 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 211 deaths per 
100,000 as of May 2021.\34\

[[Page 26790]]

Over the last year, 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.\35\ Low-income and minority communities also exhibit 
higher rates of pre-existing conditions that may contribute to an 
increased risk of COVID-19 mortality.\36\
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    \33\ 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 May 8, 2021).
    \34\ 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 May 8, 2021).
    \35\ 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 
Apr. 26, 2021).
    \36\ 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 Apr. 26, 
2021).
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    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 faced greater risk of exposure.\37\ 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.\38\ 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.\39\
---------------------------------------------------------------------------

    \37\ 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.
    \38\ 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/.
    \39\ See, e.g., Centers for Disease Control and Prevention, 
supra note 34; Benfer & Wiley, supra note 38; 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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    Eligible Public Health Uses. The Fiscal Recovery Funds provide 
resources to meet and address these emergent public health needs, 
including through measures to counter the spread of COVID-19, through 
the provision of care for those impacted by the virus, and through 
programs or services that address disparities in public health that 
have been exacerbated by the pandemic. To facilitate implementation and 
use of payments from the Fiscal Recovery Funds, the interim final rule 
identifies a non-exclusive list of eligible uses of funding to respond 
to the COVID-19 public health emergency. Eligible uses listed under 
this section build and expand upon permissible expenditures under the 
CRF, while recognizing the differences between the ARPA and CARES Act, 
and recognizing that the response to the COVID-19 public health 
emergency has changed and will continue to change over time. To 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.
    The interim final rule identifies a non-exclusive list of uses that 
address the effects of the COVID-19 public health emergency, including:
     COVID-19 Mitigation and Prevention. A broad range of 
services and programming are needed to contain COVID-19. Mitigation and 
prevention efforts for COVID-19 include 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; \40\ ventilation improvements in 
congregate settings, health care settings, or other key locations; 
enhancement of public health data systems; and other public health 
responses.\41\ They also include 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 COVID-
19 prevention and mitigation programs and services, among others, were 
eligible expenditures under the CRF and are eligible uses under this 
category of eligible uses for the Fiscal Recovery Funds.\42\
---------------------------------------------------------------------------

    \40\ This includes implementing mitigation strategies consistent 
with the Centers for Disease Control and Prevention's (CDC) 
Operational Strategy for K-12 Schools through Phased Prevention, 
available at https://www.cdc.gov/coronavirus/2019-ncov/community/schools-childcare/operation-strategy.html.
    \41\ Many of these expenses were also eligible in the CRF. 
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 here 
(e.g., telemedicine costs, costs to facilitate compliance with 
public health orders, disinfection of public areas, facilitating 
distance learning, increased solid waste disposal needs related to 
PPE, paid sick and paid family and medical leave to public employees 
to enable compliance with COVID-19 public health precautions), with 
the following two exceptions: (1) The standard for eligibility of 
public health and safety payrolls has been updated (see section II.A 
of this SUPPLEMENTARY INFORMATION) and (2) expenses related to the 
issuance of tax-anticipation notes are no longer an eligible funding 
use (see discussion of debt service in section II.B of this 
SUPPLEMENTARY INFORMATION).
    \42\ Coronavirus Relief Fund for States, Tribal Governments, and 
Certain Eligible Local Governments, 86 FR 4182 (Jan. 15, 2021), 
available at https://home.treasury.gov/system/files/136/CRF-Guidance-Federal-Register_2021-00827.pdf.
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     Medical Expenses. The COVID-19 public health emergency 
continues to have devastating effects on public health; the United 
States continues to average hundreds of deaths per day and the spread 
of new COVID-19 variants has raised new risks and genomic surveillance 
needs.\43\ Moreover, our understanding of the potentially serious and 
long-term effects of the virus is growing, including the potential for 
symptoms like shortness of breath to continue for weeks or months, for 
multi-organ impacts from COVID-19, or for post-intensive care 
syndrome.\44\ State and local governments may need to continue to 
provide care and services to address these near- and longer-term 
needs.\45\
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    \43\ Centers for Disease Control and Prevention, supra note 24.
    \44\ Centers for Disease Control and Prevention, Long-Term 
Effects (Apr. 8, 2021), https://www.cdc.gov/coronavirus/2019-ncov/long-term-effects.html (last visited Apr. 26, 2021).
    \45\ Pursuant to 42 CFR 433.51 and 45 CFR 75.306, Fiscal 
Recovery Funds may not serve as a State or locality's contribution 
of certain Federal funds.

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[[Page 26791]]

     Behavioral Health Care. In addition, new or enhanced 
State, local, and Tribal government services may be needed to meet 
behavioral health needs exacerbated by the pandemic and respond to 
other public health impacts. These services include mental health 
treatment, substance misuse treatment, other behavioral health 
services, 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.
     Public Health and Safety Staff. Treasury recognizes that 
responding to the public health and negative economic impacts of the 
pandemic, including administering the services described above, 
requires a substantial commitment of State, local, and Tribal 
government human resources. As a result, the Fiscal Recovery Funds may 
be used for payroll and covered benefits expenses for public safety, 
public health, health care, human services, and similar employees, to 
the extent that their services are devoted to mitigating or responding 
to the COVID-19 public health emergency.\46\ Accordingly, the Fiscal 
Recovery Funds may be used to support the payroll and covered benefits 
for the portion of the employee's time that is dedicated to responding 
to the COVID-19 public health emergency. For administrative 
convenience, the recipient may consider public health and safety 
employees to be entirely devoted to mitigating or responding to the 
COVID-19 public health emergency, and therefore fully covered, if the 
employee, or his or her operating unit or division, is primarily 
dedicated to responding to the COVID-19 public health emergency. 
Recipients may consider other presumptions for assessing the extent to 
which an employee, 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. Recipients need not routinely track staff hours.
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    \46\ In general, if an employee's wages and salaries are an 
eligible use of Fiscal Recovery Funds, recipients may treat the 
employee's covered benefits as an eligible use of Fiscal Recovery 
Funds. For purposes of the Fiscal Recovery 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).
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     Expenses to Improve the Design and Execution of Health and 
Public Health Programs. State, local, and Tribal governments may use 
payments from the Fiscal Recovery Funds to engage in planning and 
analysis in order to improve programs addressing the COVID-19 pandemic, 
including through use of targeted consumer outreach, improvements to 
data or technology infrastructure, impact evaluations, and data 
analysis.
    Eligible Uses to Address Disparities in Public Health Outcomes. In 
addition, in recognition of the disproportionate impacts of the COVID-
19 pandemic on health outcomes in low-income and Native American 
communities and the importance of mitigating these effects, the interim 
final rule identifies a broader range of services and programs that 
will be presumed to be responding to the public health emergency when 
provided in these communities. Specifically, Treasury will presume that 
certain types of services, outlined below, are eligible uses when 
provided in a Qualified Census Tract (QCT),\47\ to families living in 
QCTs, or when these services are provided by Tribal governments.\48\ 
Recipients may also provide these services to other populations, 
households, or geographic areas that are disproportionately impacted by 
the pandemic. 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.
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    \47\ Qualified Census Tracts are a common, readily-accessible, 
and geographically granular method of identifying communities with a 
large proportion of low-income residents. Using an existing measure 
may speed implementation and decrease administrative burden, while 
identifying areas of need at a highly-localized level.
    While QCTs are an effective tool generally, many tribal 
communities have households with a wide range of income levels due 
in part to non-tribal member, high income residents living in the 
community. Mixed income communities, with a significant share of 
tribal members at the lowest levels of income, are often not 
included as eligible QCTs yet tribal residents are experiencing 
disproportionate impacts due to the pandemic. Therefore, including 
all services provided by Tribal governments is a more effective 
means of ensuring that disproportionately impacted Tribal members 
can receive services.
    \48\ U.S. Department of Housing and Urban Development (HUD), 
Qualified Census Tracts and Difficult Development Areas, https://www.huduser.gov/portal/datasets/qct.html (last visited Apr. 26, 
2021); U.S. Department of the Interior, Bureau of Indian Affairs, 
Indian Lands of Federally Recognized Tribes of the United States 
(June 2016), https://www.bia.gov/sites/bia.gov/files/assets/bia/ots/webteam/pdf/idc1-028635.pdf (last visited Apr. 26, 2021).
---------------------------------------------------------------------------

    Given the exacerbation of health disparities during the pandemic 
and the role of pre-existing social vulnerabilities in driving these 
disparate outcomes, services to address health disparities are presumed 
to be responsive to the public health impacts of the pandemic. 
Specifically, recipients may use payments from the Fiscal Recovery 
Funds to facilitate access to resources that improve health outcomes, 
including services that connect residents with health care resources 
and public assistance programs and build healthier environments, such 
as:
     Funding community health workers to help community members 
access health services and services to address the social determinants 
of health; \49\
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    \49\ The social determinants of health are the social and 
environmental conditions that affect health outcomes, specifically 
economic stability, health care access, social context, 
neighborhoods and built environment, and education access. See, 
e.g., U.S. Department of Health and Human Services, Office of 
Disease Prevention and Health Promotion, Healthy People 2030: Social 
Determinants of Health, https://health.gov/healthypeople/objectives-and-data/social-determinants-health (last visited Apr. 26, 2021).
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     Funding public benefits navigators to assist community 
members with navigating and applying for available Federal, State, and 
local public benefits or services;
     Housing services to support healthy living environments 
and neighborhoods conducive to mental and physical wellness;
     Remediation of lead paint or other lead hazards to reduce 
risk of elevated blood lead levels among children; and
     Evidence-based community violence intervention programs to 
prevent violence and mitigate the increase in violence during the 
pandemic.\50\
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    \50\ National Commission on COVID-19 and Criminal Justice, 
Impact Report: COVID-19 and Crime (Jan. 31, 2021), https://covid19.counciloncj.org/2021/01/31/impact-report-covid-19-and-crime-3/ (showing a spike in homicide and assaults); Brad Boesrup et al., 
Alarming Trends in US domestic violence during the COVID-19 
pandemic, Am. J. of Emerg. Med. 38(12): 2753-55 (Dec. 1, 2020), 
available at https://www.ajemjournal.com/article/S0735-6757(20)30307-7/fulltext (showing a spike in domestic violence).
---------------------------------------------------------------------------

2. Responding to Negative Economic Impacts
    Impacts on Households and Individuals. 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

[[Page 26792]]

education, and travel declined precipitously, over 20 million jobs were 
lost in March and April 2020.\51\ Although many have returned to work, 
as of April 2021, the economy remains 8.2 million jobs below its pre-
pandemic peak,\52\ and more than 3 million workers have dropped out of 
the labor market altogether relative to February 2020.\53\
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    \51\ 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 May 
8, 2021).
    \52\ Id.
    \53\ 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 May 8, 
2021).
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    Rates of unemployment are 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 6.1 
percent in April 2021, but certain groups saw much higher rates: 9.7 
percent for Black workers, 7.9 percent for Hispanic or Latino workers, 
and 9.3 percent for workers without a high school diploma.\54\ Job 
losses have also been particularly steep among low wage workers, with 
these workers remaining furthest from recovery as of the end of 
2020.\55\ A severe recession--and its concentrated impact among low-
income workers--has amplified food and housing insecurity, with an 
estimated nearly 17 million adults living in households where there is 
sometimes or often not enough food to eat and an estimated 10.7 million 
adults living in households that were not current on rent.\56\ Over the 
course of the pandemic, inequities also manifested along gender lines, 
as schools closed to in-person activities, leaving many working 
families without child care during the day.\57\ Women of color have 
been hit especially hard: The labor force participation rate for Black 
women has fallen by 3.2 percentage points \58\ during the pandemic as 
compared to 1.0 percentage points for Black men \59\ and 2.0 percentage 
points for White women.\60\
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    \54\ U.S. Bureau of Labor Statistics, Labor Force Statistics 
from the Current Population Survey: Employment status of the 
civilian population by sex and age (May 8 2021), https://www.bls.gov/news.release/empsit.t01.htm (last visited May 8, 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 (May 8, 2021), https://www.bls.gov/web/empsit/cpseea04.htm (last visited May 8, 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 (May 8, 
2021), https://www.bls.gov/web/empsit/cpseea05.htm (last visited May 
8, 2021).
    \55\ 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 (Feb. 2021), https://www.bls.gov/osmr/research-papers/2021/pdf/ec210020.pdf.
    \56\ 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-recessions-effects-on-food-housing-and (last visited May 8, 
2021).
    \57\ 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.
    \58\ 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 May 8, 2021).
    \59\ 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 May 8, 2021).
    \60\ 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 May 8, 2021).
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    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.\61\ 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 
\62\ and reduced familial and childhood wellbeing.\63\ These potential 
long-term economic consequences underscore the continued need for 
robust policy support.
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    \61\ 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, 2021), 
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/.
    \62\ Chi Chi Wu, Solving the Credit Conundrum: Helping 
Consumers' Credit Records Impaired by the Foreclosure Crisis and 
Great Recession (Dec. 2013), https://www.nclc.org/images/pdf/credit_reports/report-credit-conundrum-2013.pdf.
    \63\ 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.
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    Impacts on Businesses. The pandemic has also severely impacted many 
businesses, with small businesses hit especially hard. Small businesses 
make up nearly half of U.S. private-sector employment \64\ and play a 
key role in supporting the overall economic recovery as they are 
responsible for two-thirds of net new jobs.\65\ Since the beginning of 
the pandemic, however, 400,000 small businesses have closed, with many 
more at risk.\66\ Sectors with a large share of small business 
employment have been among those with the most drastic drops in 
employment.\67\ The negative outlook for small businesses has 
continued: As of April 2021, approximately 70 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.\68\
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    \64\ Board of Governors of the Federal Reserve System, supra 
note 5.
    \65\ 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/.
    \66\ Biden, supra note 6.
    \67\ 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.
    \68\ U.S. Census Bureau, Small Business Pulse Survey, https://portal.census.gov/pulse/data/ (last visited May 8, 2021).
---------------------------------------------------------------------------

    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.\69\ In general, small businesses can face 
greater hurdles in accessing credit,\70\ and many small businesses were 
already financially fragile at the outset of the pandemic.\71\ Non-
profits, which provide vital services to communities, have similarly 
faced

[[Page 26793]]

economic and financial challenges due to the pandemic.\72\
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    \69\ 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.
    \70\ 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.
    \71\ 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.
    \72\ 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-nonprofits-serving-western-united-states.pdf.
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    Impacts to State, Local, and Tribal Governments. State, local, and 
Tribal governments have felt substantial fiscal pressures. As noted 
above, State, local, and Tribal governments have faced significant 
revenue shortfalls and remain over 1 million jobs below their pre-
pandemic staffing levels.\73\ These reductions in staffing may 
undermine the ability to deliver services effectively, as well as add 
to the number of unemployed individuals in their jurisdictions.
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    \73\ Bureau of Labor Statistics, supra note 8; Elijah Moreno & 
Heather Sobrepena, Tribal entities remain resilient as COVID-19 
batters their finances, Federal Reserve Bank of Minneapolis (Nov. 
10, 2021), https://www.minneapolisfed.org/article/2020/tribal-entities-remain-resilient-as-covid-19-batters-their-finances.
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    Exacerbation of Pre-existing Disparities. The COVID-19 public 
health emergency may have lasting negative effects on economic 
outcomes, particularly in exacerbating disparities that existed prior 
to the pandemic.
    The negative economic impacts of the COVID-19 pandemic are 
particularly pronounced in certain communities and families. Low- and 
moderate-income jobs make up a substantial portion of both total 
pandemic job losses,\74\ and jobs that require in-person frontline 
work, which are exposed to greater risk of contracting COVID-19.\75\ 
Both factors compound pre-existing vulnerabilities and the likelihood 
of food, housing, or other financial insecurity in low- and moderate-
income families and, given the concentration of low- and moderate-
income families within certain communities,\76\ raise a substantial 
risk that the effects of the COVID-19 public health emergency will be 
amplified within these communities.
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    \74\ Kim Parker et al., Economic Fallout from COVID-19 Continues 
to Hit Lower-Income Americans the Hardest, Pew Research Center 
(Sept. 24, 2020), https://www.pewresearch.org/social-trends/2020/09/24/economic-fallout-from-covid-19-continues-to-hit-lower-income-americans-the-hardest/; Gould, supra note 55.
    \75\ See infra Section II.B of this Supplementary Information.
    \76\ Elizabeth Kneebone, The Changing geography of US poverty, 
Brookings Institution (Feb. 15, 2017), https://www.brookings.edu/testimonies/the-changing-geography-of-us-poverty/.
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    These compounding effect of recessions on concentrated poverty and 
the long-lasting nature of this effect were observed after the 2007-
2009 recession, including a large increase in concentrated poverty with 
the number of people living in extremely poor neighborhoods more than 
doubling by 2010-2014 relative to 2000.\77\ Concentrated poverty has a 
range of deleterious impacts, including additional burdens on families 
and reduced economic potential and social cohesion.\78\ Given the 
disproportionate impact of COVID-19 on low-income households discussed 
above, there is a risk that the current pandemic-induced recession 
could further increase concentrated poverty and cause long-term damage 
to economic prospects in neighborhoods of concentrated poverty.
---------------------------------------------------------------------------

    \77\ Elizabeth Kneebone & Natalie Holmes, U.S. concentrated 
poverty in the wake of the Great Recession, Brookings Institution 
(Mar. 31, 2016), https://www.brookings.edu/research/u-s-concentrated-poverty-in-the-wake-of-the-great-recession/.
    \78\ David Erickson et al., The Enduring Challenge of 
Concentrated Poverty in America: Case Studies from Communities 
Across the U.S. (2008), available at https://www.frbsf.org/community-development/files/cp_fullreport.pdf.
---------------------------------------------------------------------------

    The negative economic impacts of COVID-19 also include significant 
impacts to children in disproportionately affected families and include 
impacts to education, health, and welfare, all of which contribute to 
long-term economic outcomes.\79\ Many low-income and minority students, 
who were disproportionately served by remote or hybrid education during 
the pandemic, lacked the resources to participate fully in remote 
schooling or live in households without adults available throughout the 
day to assist with online coursework.\80\ Given these trends, the 
pandemic may widen educational disparities and worsen outcomes for low-
income students,\81\ an effect that would substantially impact their 
long-term economic outcomes. Increased economic strain or material 
hardship due to the pandemic could also have a long-term impact on 
health, educational, and economic outcomes of young children.\82\ 
Evidence suggests that adverse conditions in early childhood, including 
exposure to poverty, food insecurity, housing insecurity, or other 
economic hardships, are particularly impactful.\83\
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    \79\ Educational quality, as early as Kindergarten, has a long-
term impact on children's public health and economic outcomes. See, 
e.g., Tyler W. Watts et al., The Chicago School Readiness Project: 
Examining the long-term impacts of an early childhood intervention, 
PLoS ONE 13(7) (2018), available at https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0200144; Opportunity 
Insights, How Can We Amplify Education as an Engine of Mobility? 
Using big data to help children get the most from school, https://opportunityinsights.org/education/ (last visited Apr. 26, 2021); 
U.S. Department of Health and Human Services (HHS), Office of 
Disease Prevention and Health Promotion, Early Childhood Development 
and Education, https://www.healthypeople.gov/2020/topics-objectives/topic/social-determinants-health/interventions-resources/early-childhood-development-and-education (last visited Apr. 26, 2021).
    \80\ See, e.g., Bacher-Hicks, supra note 14.
    \81\ A Department of Education survey found that, as of February 
2021, 42 percent of fourth grade students nationwide were offered 
only remote education, compared to 48 percent of economically 
disadvantaged students, 54 percent of Black students and 57 percent 
of Hispanic students. Large districts often disproportionately serve 
low-income students. See Institute of Education Sciences, Monthly 
School Survey Dashboard, https://ies.ed.gov/schoolsurvey/ (last 
visited Apr. 26, 2021). In summer 2020, a review found that 74 
percent of the largest 100 districts chose remote learning only. See 
Education Week, School Districts' Reopening Plans: A Snapshot (Jul. 
15, 2020), https://www.edweek.org/leadership/school-districts-reopening-plans-a-snapshot/2020/07 (last visited May 4, 2021).
    \82\ HHS, supra note 79.
    \83\ Hirokazu Yoshikawa, Effects of the Global Coronavirus 
Disease--2019 Pandemic on Early Childhood Development: Short- and 
Long-Term Risks and Mitigating Program and Policy Actions, J. of 
Pediatrics Vol. 223:188-93 (Aug. 1, 2020), available at https://www.jpeds.com/article/S0022-3476(20)30606-5/abstract.
---------------------------------------------------------------------------

    The pandemic's disproportionate economic impacts are also seen in 
Tribal communities across the country--for Tribal governments as well 
as families and businesses on and off Tribal lands. In the early months 
of the pandemic, Native American unemployment spiked to 26 percent and, 
while partially recovered, remains at nearly 11 percent.\84\ Tribal 
enterprises are a significant source of revenue for Tribal governments 
to support the provision of government services. These enterprises, 
notably concentrated in gaming, tourism, and hospitality, frequently 
closed, significantly reducing both revenues to Tribal governments and 
employment. As a result, Tribal governments have reduced essential 
services to their citizens and communities.\85\
---------------------------------------------------------------------------

    \84\ Based on calculations conducted by the Minneapolis Fed's 
Center for Indian Country Development using Flood et al. (2020)'s 
Current Population Survey.'' Sarah Flood, Miriam King, Renae 
Rodgers, Steven Ruggles and J. Robert Warren. Integrated Public Use 
Microdata Series, Current Population Survey: Version 8.0 [dataset]. 
Minneapolis, MN: IPUMS, 2020. https://doi.org/10.18128/D030.V8.0; 
see also Donna Feir & Charles Golding, Native Employment During 
COVID-19: Hard hit in April but Starting to Rebount? (Aug. 5, 2020), 
https://www.minneapolisfed.org/article/2020/native-employment-during-covid-19-hit-hard-in-april-but-starting-to-rebound.
    \85\ Moreno & Sobrepena, supra note 73.
---------------------------------------------------------------------------

    Eligible Uses. Sections 602(c)(1)(A) and 603(c)(1)(A) permit use of 
payments from the Fiscal Recovery Funds to respond to the negative 
economic impacts of the COVID-19 public health emergency. Eligible 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

[[Page 26794]]

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 
or address this harm.\86\ 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. While economic impacts may either 
be immediate or delayed, assistance or aid to individuals or businesses 
that did not experience a negative economic impact from the public 
health emergency would not be an eligible use under this category.
---------------------------------------------------------------------------

    \86\ 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 the Act.
---------------------------------------------------------------------------

    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. Where there has been a 
negative economic impact resulting from the public health emergency, 
States, local, and Tribal governments have broad latitude to choose 
whether and how to use the Fiscal Recovery Funds to respond to and 
address the negative economic impact. Sections 602(c)(1)(A) and 
603(c)(1)(A) describe several types of uses that would be eligible 
under this category, including assistance to households, small 
businesses, and nonprofits and aid to impacted industries such as 
tourism, travel, and hospitality.
    To facilitate implementation and use of payments from the Fiscal 
Recovery Funds, the interim final rule identifies a non-exclusive list 
of eligible uses of funding that respond to the negative economic 
impacts of the public health emergency. Consistent with the discussion 
above, the eligible uses listed below would respond directly to the 
economic or financial harms resulting from and or exacerbated by the 
public health emergency.
     Assistance to Unemployed Workers. This includes assistance 
to unemployed workers, including services like job training to 
accelerate rehiring of unemployed workers; these services may extend to 
workers unemployed due to the pandemic or the resulting recession, or 
who were already unemployed when the pandemic began and remain so due 
to the negative economic impacts of the pandemic.
     State Unemployment Insurance Trust Funds. Consistent with 
the approach taken in the CRF, recipients may make deposits into the 
state 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 balances 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, given the close nexus between 
Unemployment Trust Fund costs, solvency of Unemployment Trust Fund 
systems, and pandemic economic impacts. Further, Unemployment Trust 
Fund deposits can decrease fiscal strain on Unemployment Insurance 
systems impacted by the pandemic. States facing a sharp increase in 
Unemployment Insurance claims during the pandemic may have drawn down 
positive Unemployment Trust Fund balances and, after exhausting the 
balance, required advances to fund continuing obligations to claimants. 
Because both of these impacts were driven directly by the need for 
assistance to unemployed workers during the pandemic, replenishing 
Unemployment Trust Funds up to the pre-pandemic level responds to the 
pandemic's negative economic impacts on unemployed workers.
     Assistance to Households. Assistance to households or 
populations facing negative economic impacts due to COVID-19 is also an 
eligible use. This includes: Food assistance; rent, mortgage, or 
utility assistance; counseling and legal aid to prevent eviction or 
homelessness; cash assistance (discussed below); emergency assistance 
for burials, home repairs, weatherization, or other needs; internet 
access or digital literacy assistance; or job training to address 
negative economic or public health impacts experienced due to a 
worker's occupation or level of training. As discussed above, in 
considering whether a potential use is eligible under this category, a 
recipient must consider whether, and the extent to which, the household 
has experienced a negative economic impact from the pandemic. In 
assessing whether a household or population experienced economic harm 
as a result of the pandemic, a recipient may presume that a household 
or population that experienced unemployment or increased food or 
housing insecurity or is low- or moderate-income experienced negative 
economic impacts resulting from the pandemic. For example, a cash 
transfer program may focus on unemployed workers or low- and moderate-
income families, which have faced disproportionate economic harms due 
to the pandemic. Cash transfers must be reasonably proportional to the 
negative economic impact they are intended to address. Cash transfers 
grossly in excess of the amount needed to address the negative economic 
impact identified by the recipient would not be considered to be a 
response to the COVID-19 public health emergency or its negative 
impacts. In particular, when considering the appropriate size of 
permissible cash transfers made in response to the COVID-19 public 
health emergency, State, local and Tribal governments may consider and 
take guidance from the per person amounts previously provided by the 
Federal Government in response to the COVID-19 crisis. Cash transfers 
that are grossly in excess of such amounts would be outside the scope 
of eligible uses under sections 602(c)(1)(A) and 603(c)(1)(A) and could 
be subject to recoupment. In addition, a recipient could provide 
survivor's benefits to surviving family members of COVID-19 victims, or 
cash assistance to widows, widowers, and dependents of eligible COVID-
19 victims.
     Expenses to Improve Efficacy of Economic Relief Programs. 
State, local, and Tribal governments may use payments from the Fiscal 
Recovery Funds to improve efficacy of programs addressing negative 
economic impacts, including through use of data analysis, targeted 
consumer outreach, improvements to data or technology infrastructure, 
and impact evaluations.
     Small Businesses and Non-profits. As discussed above, 
small businesses and non-profits 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. State, local, and Tribal governments 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:
    [cir] 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;
    [cir] Loans, grants, or in-kind assistance to implement COVID-19 
prevention or mitigation tactics, such as physical

[[Page 26795]]

plant changes to enable social distancing, enhanced cleaning efforts, 
barriers or partitions, or COVID-19 vaccination, testing, or contact 
tracing programs; and
    [cir] Technical assistance, counseling, or other services to assist 
with business planning needs.
    As discussed above, these services should respond to the negative 
economic impacts of COVID-19. 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 disadvantaged communities. Recipients should consider local 
economic conditions and business data when establishing such 
criteria.\87\
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    \87\ See Federal Reserve Bank of Cleveland, An Uphill Battle: 
COVID-19's Outsized Toll on Minority-Owned Firms (Oct. 8, 2020), 
https://www.clevelandfed.org/newsroom-and-events/publications/community-development-briefs/db-20201008-misera-report.aspx 
(discussing the impact of COVID-19 on minority owned businesses).
---------------------------------------------------------------------------

     Rehiring State, Local, and Tribal Government Staff. State, 
local, and Tribal governments continue to see pandemic impacts in 
overall staffing levels: State, local, and Tribal government employment 
remains more than 1 million jobs lower in April 2021 than prior to the 
pandemic.\88\ Employment losses decrease a state or local government's 
ability to effectively administer services. Thus, the interim final 
rule includes as an eligible use payroll, covered benefits, and other 
costs associated with rehiring public sector staff, up to the pre-
pandemic staffing level of the government.
---------------------------------------------------------------------------

    \88\ 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 May 8, 2021).
---------------------------------------------------------------------------

     Aid to Impacted Industries. Sections 602(c)(1)(A) and 
603(c)(1)(A) recognize that certain industries, such as tourism, 
travel, and hospitality, were disproportionately and negatively 
impacted by the COVID-19 public health emergency. Aid provided to 
tourism, travel, and hospitality industries should respond to the 
negative economic impacts of the pandemic on those and similarly 
impacted industries. For example, aid may include assistance to 
implement COVID-19 mitigation and infection prevention measures to 
enable safe resumption of tourism, travel, and hospitality services, 
for example, 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.
    Aid may be considered responsive to the negative economic impacts 
of the pandemic if it supports businesses, attractions, business 
districts, and Tribal development districts operating prior to the 
pandemic and affected by required closures and other efforts to contain 
the pandemic. For example, a recipient may provide aid to support safe 
reopening of businesses in the tourism, travel, and hospitality 
industries and to business districts that were closed during the COVID-
19 public health emergency, as well as aid for a planned expansion or 
upgrade of tourism, travel, and hospitality facilities delayed due to 
the pandemic.
    When considering providing aid to industries other than tourism, 
travel, and hospitality, recipients should consider the extent of the 
economic impact as compared to tourism, travel, and hospitality, the 
industries enumerated in the statute. For example, on net, the leisure 
and hospitality industry has experienced an approximately 24 percent 
decline in revenue and approximately 17 percent decline in employment 
nationwide due to the COVID-19 public health emergency.\89\ Recipients 
should also consider whether impacts were due to the COVID-19 pandemic, 
as opposed to longer-term economic or industrial trends unrelated to 
the pandemic.
---------------------------------------------------------------------------

    \89\ From February 2020 to April 2021, employment in ``Leisure 
and hospitality'' has fallen by approximately 17 percent. See U.S. 
Bureau of Labor Statistics, All Employees, Leisure and Hospitality, 
retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/USLAH (last visited May 8, 2021). From 
2019Q4 to 2020Q4, gross output (e.g. revenue) in arts, 
entertainment, recreation, accommodation, and food services has 
fallen by approximately 24 percent. See Bureau of Economic Analysis, 
News Release: Gross Domestic Product (Third Estimate), Corporate 
Profits, and GDP by Industry, Fourth Quarter and Year 2020 (Mar. 25, 
2021), Table 17, https://www.bea.gov/sites/default/files/2021-03/gdp4q20_3rd.pdf.
---------------------------------------------------------------------------

    To facilitate transparency and accountability, the interim final 
rule requires that State, local, and Tribal governments 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 
pandemic. Recipients also should maintain records to support their 
assessment of how businesses or business districts receiving assistance 
were affected by the negative economic impacts of the pandemic and how 
the aid provided responds to these impacts.
    As discussed above, economic disparities that existed prior to the 
COVID-19 public health emergency amplified the impact of the pandemic 
among low-income and minority groups. These families were more likely 
to face housing, food, and financial insecurity; are over-represented 
among low-wage workers; and many have seen their livelihoods 
deteriorate further during the pandemic and economic contraction. In 
recognition of the disproportionate negative economic impacts on 
certain communities and populations, 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.
    Specifically, Treasury will presume that certain types of services, 
outlined below, are eligible uses when provided in a QCT, to families 
and individuals living in QCTs, or when these services are provided by 
Tribal governments.\90\ Recipients may also provide these services to 
other populations, households, or geographic areas disproportionately 
impacted by the pandemic. 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. The interim final rule identifies a non-
exclusive list of uses that address the disproportionate negative 
economic effects of the COVID-19 public health emergency, including:
---------------------------------------------------------------------------

    \90\ HUD, supra note 48.
---------------------------------------------------------------------------

    [cir] Building Stronger Communities through Investments in Housing 
and Neighborhoods. The economic impacts of COVID-19 have likely been 
most acute in lower-income neighborhoods, including concentrated areas 
of high unemployment, limited economic opportunity, and housing 
insecurity.\91\

[[Page 26796]]

Services in this category alleviate the immediate economic impacts of 
the COVID-19 pandemic on housing insecurity, while addressing 
conditions that contributed to poor public health and economic outcomes 
during the pandemic, namely concentrated areas with limited economic 
opportunity and inadequate or poor-quality housing.\92\ Eligible 
services include:
---------------------------------------------------------------------------

    \91\ Stuart M. Butler & Jonathan Grabinsky, Tackling the legacy 
of persistent urban inequality and concentrated poverty, Brookings 
Institution (Nov. 16, 2020), https://www.brookings.edu/blog/up-front/2020/11/16/tackling-the-legacy-of-persistent-urban-inequality-and-concentrated-poverty/.
    \92\ U.S. Department of Health and Human Services (HHS), Office 
of Disease Prevention and Health Promotion, Quality of Housing, 
https://www.healthypeople.gov/2020/topics-objectives/topic/social-determinants-health/interventions-resources/quality-of-housing#11 
(last visited Apr. 26, 2021).
---------------------------------------------------------------------------

    [ssquf] Services to address homelessness such as supportive 
housing, and to improve access to stable, affordable housing among 
unhoused individuals;
    [ssquf] Affordable housing development to increase supply of 
affordable and high-quality living units; and
    [ssquf] 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, to help residents increase their economic opportunity and 
reduce concentrated areas of low economic opportunity.\93\
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    \93\ The Opportunity Atlas, https://www.opportunityatlas.org/ 
(last visited Apr. 26, 2021); Raj Chetty & Nathaniel Hendren, The 
Impacts of Neighborhoods on Intergenerational Mobility I: Childhood 
Exposure Effects, Quarterly J. of Econ. 133(3):1107-162 (2018), 
available at https://opportunityinsights.org/paper/neighborhoodsi/.
---------------------------------------------------------------------------

    [cir] Addressing Educational Disparities. As outlined above, school 
closures and the transition to remote education raised particular 
challenges for lower-income students, potentially exacerbating 
educational disparities, while increases in economic hardship among 
families could have long-lasting impacts on children's educational and 
economic prospects. Services under this prong would enhance educational 
supports to help mitigate impacts of the pandemic. Eligible services 
include:
    [ssquf] New, expanded, or enhanced early learning services, 
including pre-kindergarten, Head Start, or partnerships between pre-
kindergarten programs and local education authorities, or 
administration of those services;
    [ssquf] Providing assistance to high-poverty school districts to 
advance equitable funding across districts and geographies;
    [ssquf] Evidence-based educational services and practices to 
address the academic needs of students, including tutoring, summer, 
afterschool, and other extended learning and enrichment programs; and
    [ssquf] Evidence-based practices to address the social, emotional, 
and mental health needs of students;
    [cir] Promoting Healthy Childhood Environments. Children's economic 
and family circumstances have a long-term impact on their future 
economic outcomes.\94\ Increases in economic hardship, material 
insecurity, and parental stress and behavioral health challenges all 
raise the risk of long-term harms to today's children due to the 
pandemic. Eligible services to address this challenge include:
---------------------------------------------------------------------------

    \94\ See supra notes 52 and 84.
---------------------------------------------------------------------------

    [ssquf] New or expanded high-quality childcare to provide safe and 
supportive care for children;
    [ssquf] Home visiting programs to provide structured visits from 
health, parent educators, and social service professionals to pregnant 
women or families with young children to offer education and assistance 
navigating resources for economic support, health needs, or child 
development; and
    [ssquf] Enhanced services for child welfare-involved families and 
foster youth to provide support and training on child development, 
positive parenting, coping skills, or recovery for mental health and 
substance use challenges.
    State, local, and Tribal governments are encouraged to use payments 
from the Fiscal Recovery Funds to respond to the direct and immediate 
needs of the pandemic and its negative economic impacts and, in 
particular, the needs of households and businesses that were 
disproportionately and negatively impacted by the public health 
emergency. As highlighted above, low-income communities and workers and 
people of color have faced more severe health and economic outcomes 
during the pandemic, with pre-existing social vulnerabilities like low-
wage or insecure employment, concentrated neighborhoods with less 
economic opportunity, and pre-existing health disparities likely 
contributing to the magnified impact of the pandemic. The Fiscal 
Recovery Funds provide resources to not only respond to the immediate 
harms of the pandemic but also to mitigate its longer-term impact in 
compounding the systemic public health and economic challenges of 
disproportionately impacted populations. Treasury encourages recipients 
to consider funding uses that foster a strong, inclusive, and equitable 
recovery, especially uses with long-term benefits for health and 
economic outcomes.
    Uses Outside the Scope of this Category. Certain uses would not be 
within the scope of this eligible use category, although may be 
eligible under other eligible use categories. A general infrastructure 
project, for example, typically would not be included unless the 
project responded to a specific pandemic public health need (e.g., 
investments in facilities for the delivery of vaccines) or a specific 
negative economic impact like those described above (e.g., affordable 
housing in a QCT). The ARPA explicitly includes infrastructure if it is 
``necessary'' and in water, sewer, or broadband. See Section II.D of 
this Supplementary Information. State, local, and Tribal governments 
also may use the Fiscal Recovery Funds under sections 602(c)(1)(C) or 
603(c)(1)(C) to provide ``government services'' broadly to the extent 
of their reduction in revenue. See Section II.C of this Supplementary 
Information.
    This category of eligible uses also would not include contributions 
to rainy day funds, financial reserves, or similar funds. Resources 
made available under this eligible use category are intended to help 
meet pandemic response needs and provide relief for households and 
businesses facing near- and long-term negative economic impacts. 
Contributions to rainy day funds and similar financial reserves would 
not address these needs or respond to the COVID-19 public health 
emergency but would rather constitute savings for future spending 
needs. Similarly, this eligible use category would not include payment 
of interest or principal on outstanding debt instruments, including, 
for example, short-term revenue or tax anticipation notes, or other 
debt service costs. As discussed below, payments from the Fiscal 
Recovery Funds are intended to be used prospectively and the interim 
final rule precludes use of these funds to cover the costs of debt 
incurred prior to March 3, 2021. Fees or issuance costs associated with 
the issuance of new debt would also not be covered using payments from 
the Fiscal Recovery Funds because such costs would not themselves have 
been incurred to address the needs of pandemic response or its negative 
economic impacts. The purpose of the Fiscal Recovery Funds is to 
provide fiscal relief that will permit State, local, and Tribal 
governments to continue to respond to the COVID-19 public health 
emergency.
    For the same reasons, this category of eligible uses would not 
include satisfaction of any obligation arising under or pursuant to a 
settlement agreement, judgment, consent decree, or judicially confirmed 
debt restructuring

[[Page 26797]]

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. 
That is, satisfaction of a settlement or judgment would not itself 
respond to COVID-19 with respect to the public health emergency or its 
negative economic impacts, unless the settlement requires the provision 
of services or aid that did directly respond to these needs, as 
described above.
    In addition, as described in Section V.III of this SUPPLEMENTARY 
INFORMATION, Treasury will establish reporting and record keeping 
requirements for uses within this category, including enhanced 
reporting requirements for certain types of uses.
    Question 1: Are there other types of services or costs that 
Treasury should consider as eligible uses to respond to the public 
health impacts of COVID-19? Describe how these respond to the COVID-19 
public health emergency.
    Question 2: The interim final rule permits coverage of payroll and 
benefits costs of public health and safety staff primarily dedicated to 
COVID-19 response, as well as rehiring of public sector staff up to 
pre-pandemic levels. For how long should these measures remain in 
place? What other measures or presumptions might Treasury consider to 
assess the extent to which public sector staff are engaged in COVID-19 
response, and therefore reimbursable, in an easily-administrable 
manner?
    Question 3: The interim final rule permits rehiring of public 
sector staff up to the government's pre-pandemic staffing level, which 
is measured based on employment as of January 27, 2020. Does this 
approach adequately measure the pre-pandemic staffing level in a manner 
that is both accurate and easily administrable? Why or why not?
    Question 4: The interim final rule permits deposits to Unemployment 
Insurance Trust Funds, or using funds to pay back advances, up to the 
pre-pandemic balance. What, if any, conditions should be considered to 
ensure that funds repair economic impacts of the pandemic and 
strengthen unemployment insurance systems?
    Question 5: Are there other types of services or costs that 
Treasury should consider as eligible uses to respond to the negative 
economic impacts of COVID-19? Describe how these respond to the COVID-
19 public health emergency.
    Question 6: What other measures, presumptions, or considerations 
could be used to assess ``impacted industries'' affected by the COVID-
19 public health emergency?
    Question 7: What are the advantages and disadvantages of using 
Qualified Census Tracts and services provided by Tribal governments to 
delineate where a broader range of eligible uses are presumed to be 
responsive to the public health and economic impacts of COVID-19? What 
other measures might Treasury consider? Are there other populations or 
geographic areas that were disproportionately impacted by the pandemic 
that should be explicitly included?
    Question 8: Are there 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? Describe how these 
respond to the COVID-19 public health emergency or its negative 
economic impacts, including its exacerbation of pre-existing challenges 
in these areas.
    Question 9: The interim final rule includes eligible uses to 
support affordable housing and stronger neighborhoods in 
disproportionately-impacted communities. Discuss the advantages and 
disadvantages of explicitly including other uses to support affordable 
housing and stronger neighborhoods, including rehabilitation of 
blighted properties or demolition of abandoned or vacant properties. In 
what ways does, or does not, this potential use address public health 
or economic impacts of the pandemic? What considerations, if any, could 
support use of Fiscal Recovery Funds in ways that do not result in 
resident displacement or loss of affordable housing units?

B. Premium Pay

    Fiscal Recovery Funds payments may be used by recipients to provide 
premium pay to eligible workers performing essential work during the 
COVID-19 public health emergency or to provide grants to third-party 
employers with eligible workers performing essential work.\95\ These 
are workers who have been and continue to be relied on to maintain 
continuity of operations of essential critical infrastructure sectors, 
including those who are critical to protecting the health and wellbeing 
of their communities.
---------------------------------------------------------------------------

    \95\ Sections 602(c)(1)(B), 603(c)(1)(B) of the Act.
---------------------------------------------------------------------------

    Since the start of the COVID-19 public health emergency in January 
2020, essential workers have put their physical wellbeing at risk to 
meet the daily needs of their communities and to provide care for 
others. In the course of this work, many essential workers have 
contracted or died of COVID-19.\96\ Several examples reflect the 
severity of the health impacts for essential workers. Meat processing 
plants became ``hotspots'' for transmission, with 700 new cases 
reported at a single plant on a single day in May 2020.\97\ In New York 
City, 120 employees of the Metropolitan Transit Authority were 
estimated to have died due to COVID-19 by mid-May 2020, with nearly 
4,000 testing positive for the virus.\98\ Furthermore, many essential 
workers are people of color or low-wage workers.\99\ These workers, in 
particular, have borne a disproportionate share of the health and 
economic impacts of the pandemic. Such workers include:
---------------------------------------------------------------------------

    \96\ See, e.g., Centers for Disease Control and Prevention, 
COVID Data Tracker: Cases & Death among Healthcare Personnel, 
https://covid.cdc.gov/covid-data-tracker/#health-care-personnel 
(last visited May 4, 2021); Centers for Disease Control and 
Prevention, COVID Data Tracker: Confirmed COVID-19 Cases and Deaths 
among Staff and Rate per 1,000 Resident-Weeks in Nursing Homes, by 
Week--United States, https://covid.cdc.gov/covid-data-tracker/#nursing-home-staff (last visited May 4, 2021).
    \97\ See, e.g., The Lancet, The plight of essential workers 
during the COVID-19 pandemic, Vol. 395, Issue 10237:1587 (May 23, 
2020), available at https://www.thelancet.com/journals/lancet/article/PIIS0140-6736%2820%2931200-9/fulltext.
    \98\ Id.
    \99\ Joanna Gaitens et al., Covid-19 and essential workers: A 
narrative review of health outcomes and moral injury, Int'l J. of 
Envtl. Research and Pub. Health 18(4):1446 (Feb. 4, 2021), available 
at https://pubmed.ncbi.nlm.nih.gov/33557075/; Tiana N. Rogers et 
al., Racial Disparities in COVID-19 Mortality Among Essential 
Workers in the United States, World Med. & Health policy 12(3):311-
27 (Aug. 5, 2020), available at https://onlinelibrary.wiley.com/doi/full/10.1002/wmh3.358 (finding that vulnerability to coronavirus 
exposure was increased among non-Hispanic blacks, who 
disproportionately occupied the top nine essential occupations).
---------------------------------------------------------------------------

     Staff at nursing homes, hospitals, and home care settings;
     Workers at farms, food production facilities, grocery 
stores, and restaurants;
     Janitors and sanitation workers;
     Truck drivers, transit staff, and warehouse workers;
     Public health and safety staff;
     Childcare workers, educators, and other school staff; and
     Social service and human services staff.
    During the public health emergency, employers' policies on COVID-
19-related hazard pay have varied widely, with many essential workers 
not yet compensated for the heightened risks they have faced and 
continue to face.\100\

[[Page 26798]]

Many of these workers earn lower wages on average and live in 
socioeconomically vulnerable communities as compared to the general 
population.\101\ A recent study found that 25 percent of essential 
workers were estimated to have low household income, with 13 percent in 
high-risk households.\102\ 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, including working hours lost due to 
sickness or disruptions to childcare and other daily routines, or the 
likelihood of COVID-19 spread in their households or communities. Thus, 
the threats and costs involved with maintaining the ongoing operation 
of vital facilities and services have been, and continue to be, borne 
by those that are often the most vulnerable to the pandemic. The added 
health risk to essential workers is one prominent way in which the 
pandemic has amplified pre-existing socioeconomic inequities.
---------------------------------------------------------------------------

    \100\ 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/.
    \101\ McCormack, supra note 37.
    \102\ Id.
---------------------------------------------------------------------------

    The Fiscal Recovery Funds will help respond to the needs of 
essential workers by allowing recipients to remunerate essential 
workers for the elevated health risks they have faced and continue to 
face during the public health emergency. To ensure that premium pay is 
targeted to workers that faced or face heightened risks due to the 
character of their work, the interim final rule defines essential work 
as work involving regular in-person interactions or regular physical 
handling of items that were also handled by others. A worker would not 
be engaged in essential work and, accordingly may not receive premium 
pay, for telework performed from a residence.
    Sections 602(g)(2) and 603(g)(2) define eligible worker to mean 
``those workers needed to maintain continuity of operations of 
essential critical infrastructure sectors and additional 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.'' \103\ The 
rule incorporates this definition and provides a list of industries 
recognized as essential critical infrastructure sectors.\104\ These 
sectors include healthcare, public health and safety, childcare, 
education, sanitation, transportation, and food production and 
services, among others as noted above. As provided under sections 
602(g)(2) and 603(g)(2), the chief executive of each recipient has 
discretion to add additional sectors to this list, so long as 
additional sectors are deemed critical to protect the health and well-
being of residents.
---------------------------------------------------------------------------

    \103\ Sections 602(g)(2), 603(g)(2) of the Act.
    \104\ The list of critical infrastructure sectors provided in 
the interim final rule is based on the list of essential workers 
under The Heroes Act, H.R. 6800, 116th Cong. (2020).
---------------------------------------------------------------------------

    In providing premium pay to essential workers or grants to eligible 
employers, a recipient must consider whether the pay or grant would 
``respond to'' to the worker or workers performing essential work. 
Premium pay or grants provided under this section respond to workers 
performing essential work if it addresses the heightened risk to 
workers who must be physically present at a jobsite and, for many of 
whom, the costs associated with illness were hardest to bear 
financially. Many of the workers performing critical essential services 
are low- or moderate-income workers, such as those described above. The 
ARPA recognizes this by defining premium pay to mean an amount up to 
$13 per hour in addition to wages or remuneration the worker otherwise 
receives and in an aggregate amount not to exceed $25,000 per eligible 
worker. To ensure the provision is implemented in a manner that 
compensates these workers, the interim final rule provides that any 
premium pay or grants provided using the Fiscal Recovery Funds should 
prioritize compensation of those lower income eligible workers that 
perform essential work.
    As such, providing premium pay to eligible workers responds to such 
workers by helping address the disparity between the critical services 
and risks taken by essential workers and the relatively low 
compensation they tend to receive in exchange. If premium pay would 
increase a worker's total pay above 150 percent of their residing 
state's average annual wage for all occupations, as defined by the 
Bureau of Labor Statistics' Occupational Employment and Wage 
Statistics, or their residing county's average annual wage, as defined 
by the Bureau of Labor Statistics' Occupational Employment and Wage 
Statistics, whichever is higher, on an annual basis, the State, local, 
or Tribal government must provide Treasury and make publicly available, 
whether for themselves or on behalf of a grantee, a written 
justification of how the premium pay or grant is responsive to workers 
performing essential worker during the public health emergency.\105\
---------------------------------------------------------------------------

    \105\ County median annual wage is taken to be that of the 
metropolitan or nonmetropolitan area that includes the county. See 
U.S. Bureau of Labor Statistics, State Occupational Employment and 
Wage Estimates, https://www.bls.gov/oes/current/oessrcst.htm (last 
visited May 1, 2021); U.S. Bureau of Labor Statistics, May 2020 
Metropolitan and Nonmetropolitan Area Estimates listed by county or 
town, https://www.bls.gov/oes/current/county_links.htm (last visited 
May 1, 2021).
---------------------------------------------------------------------------

    The threshold of 150 percent for requiring additional written 
justification is based on an analysis of the distribution of labor 
income for a sample of 20 occupations that generally correspond to the 
essential workers as defined in the interim final rule.\106\ For these 
occupations, labor income for the vast majority of workers was under 
150 percent of average annual labor income across all occupations. 
Treasury anticipates that the threshold of 150 percent of the annual 
average wage will be greater than the annual average wage of the vast 
majority of eligible workers performing essential work. These enhanced 
reporting requirements help to ensure grants are directed to essential 
workers in critical infrastructure sectors and responsive to the 
impacts of the pandemic observed among essential workers, namely the 
mis-alignment between health risks and compensation. Enhanced reporting 
also provides transparency to the public. Finally, using a localized 
measure reflects differences in wages and cost of living across the 
country, making this standard administrable and reflective of essential 
worker incomes across a diverse range of geographic areas.
---------------------------------------------------------------------------

    \106\ Treasury performed this analysis with data from the U.S. 
Census Bureau's 2019 Annual Social and Economic Supplement. In 
determining which occupations to include in this analysis, Treasury 
excluded management and supervisory positions, as such positions may 
not necessarily involve regular in-person interactions or physical 
handling of items to the same extent as non-managerial positions.
---------------------------------------------------------------------------

    Furthermore, because premium pay is intended to compensate 
essential workers for heightened risk due to COVID-19, it must be 
entirely additive to a worker's regular rate of wages and other 
remuneration and may not be used to reduce or substitute for a worker's 
normal earnings. The definition of premium pay also clarifies that 
premium pay may be provided retrospectively for work performed at any 
time since the start of the COVID-19 public health emergency, where 
those workers have yet to be compensated adequately for work previously 
performed.\107\ Treasury encourages recipients to prioritize providing 
retrospective premium pay where possible, recognizing that many 
essential workers have not yet received additional compensation for 
work conducted over the course of many

[[Page 26799]]

months. Essential workers who have already earned premium pay for 
essential work performed during the COVID-19 public health emergency 
remain eligible for additional payments, and an essential worker may 
receive both retrospective premium pay for prior work as well as 
prospective premium pay for current or ongoing work.
---------------------------------------------------------------------------

    \107\ However, such compensation must be ``in addition to'' 
remuneration or wages already received. That is, employers may not 
reduce such workers' current pay and use Fiscal Recovery Funds to 
compensate themselves for premium pay previously provided to the 
worker.
---------------------------------------------------------------------------

    To ensure any grants respond to the needs of essential workers and 
are made in a fair and transparent manner, the rule imposes some 
additional reporting requirements for grants to third-party employers, 
including the public disclosure of grants provided. See Section VIII of 
this SUPPLEMENTARY INFORMATION, discussing reporting requirements. In 
responding to the needs of essential workers, a grant to an employer 
may provide premium pay to eligible workers performing essential work, 
as these terms are defined in the interim final rule and discussed 
above. A grant provided to an employer may also be for essential work 
performed by eligible workers pursuant to a contract. For example, if a 
municipality contracts with a third party to perform sanitation work, 
the third-party contractor could be eligible to receive a grant to 
provide premium pay for these eligible workers.
    Question 10: Are there additional sectors beyond those listed in 
the interim final rule that should be considered essential critical 
infrastructure sectors?
    Question 11: What, if any, additional criteria should Treasury 
consider to ensure that premium pay responds to essential workers?
    Question 12: What consideration, if any, should be given to the 
criteria on salary threshold, including measure and level, for 
requiring written justification?

C. Revenue Loss

    Recipients may use payments from the Fiscal Recovery Funds for the 
provision of government services to the extent of the reduction in 
revenue experienced due to the COVID-19 public health emergency.\108\ 
Pursuant to sections 602(c)(1)(C) and 603(c)(1)(C) of the Act, a 
recipient's reduction in revenue is measured relative to the revenue 
collected in the most recent full fiscal year prior to the emergency.
---------------------------------------------------------------------------

    \108\ ARPA, supra note 16.
---------------------------------------------------------------------------

    Many State, local, and Tribal governments are experiencing 
significant budget shortfalls, which can have a devastating impact on 
communities. State government tax revenue from major sources were down 
4.3 percent in the six months ended September 2020, relative to the 
same period 2019.\109\ At the local level, nearly 90 percent of cities 
have reported being less able to meet the fiscal needs of their 
communities and, on average, cities expect a double-digit decline in 
general fund revenues in their fiscal year 2021.\110\ Similarly, 
surveys of Tribal governments and Tribal enterprises found majorities 
of respondents reporting substantial cost increases and revenue 
decreases, with Tribal governments reporting reductions in healthcare, 
housing, social services, and economic development activities as a 
result of reduced revenues.\111\ These budget shortfalls are 
particularly problematic in the current environment, as State, local, 
and Tribal governments work to mitigate and contain the COVID-19 
pandemic and help citizens weather the economic downturn.
---------------------------------------------------------------------------

    \109\ Major sources include personal income tax, corporate 
income tax, sales tax, and property tax. See Lucy Dadayan., States 
Reported Revenue Growth in July-September Quarter, Reflecting 
Revenue Shifts from the Prior Quarter, State Tax and Econ. Rev. (Q. 
3, 2020), available at https://www.urban.org/sites/default/files/publication/103938/state-tax-and-economic-review-2020-q3_0.pdf.
    \110\ 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.
    \111\ Surveys conducted by the Center for Indian Country 
Development at the Federal Reserve Bank of Minneapolis in March, 
April, and September 2020. See Moreno & Sobrepena, supra note 73.
---------------------------------------------------------------------------

    Further, 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.\112\ Inflation-adjusted State and local government revenue 
did not return to the previous peak until 2013,\113\ while State, 
local, and Tribal government employment did not recover to its prior 
peak for over a decade, until August 2019--just a few months before the 
COVID-19 public health emergency began.\114\
---------------------------------------------------------------------------

    \112\ See, e.g., Fitzpatrick, Haughwout & Setren, Fiscal Drag 
from the State and Local Sector?, Liberty Street Economics Blog, 
Federal Reserve Bank of New York (June 27, 2012), https://www.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 9.
    \113\ State and local government general revenue from own 
sources, adjusted for inflation using the GDP price index. U.S. 
Census Bureau, Annual Survey of State Government Finances and U.S. 
Bureau of Economic Analysis, National Income and Product Accounts.
    \114\ 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 Apr. 27, 
2021).
---------------------------------------------------------------------------

    Sections 602(c)(1)(C) and 603(c)(1)(C) of the Act allow recipients 
facing budget shortfalls to use payments from the Fiscal Recovery Funds 
to avoid cuts to government services and, thus, enable State, local, 
and Tribal governments to continue to provide valuable services and 
ensure that fiscal austerity measures do not hamper the broader 
economic recovery. The interim final rule implements these provisions 
by establishing a definition of ``general revenue'' for purposes of 
calculating a loss in revenue and by providing a methodology for 
calculating revenue lost due to the COVID-19 public health emergency.
    General Revenue. The interim final rule adopts 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, and for purposes of this 
interim final rule, helps to ensure that the components of general 
revenue would be calculated in a consistent manner.\115\ By relying on 
a methodology that is both familiar and comprehensive, this approach 
minimizes burden to recipients and provides consistency in the 
measurement of general revenue across a diverse set of recipients.
---------------------------------------------------------------------------

    \115\ U.S. Census Bureau, Annual Survey of State and Local 
Government Finances, https://www.census.gov/programs-surveys/gov-finances.html (last visited Apr. 30, 2021).
---------------------------------------------------------------------------

    The interim final rule defines the term ``general revenue'' to 
include revenues collected by a recipient and generated from its 
underlying economy and would capture a range of different types of tax 
revenues, as well as other types of revenue that are available to 
support government services.\116\ In calculating revenue, recipients 
should sum across all revenue streams covered as general revenue. This 
approach minimizes the administrative burden for recipients, provides 
for greater consistency across recipients, and presents a more accurate 
representation of the overall impact of

[[Page 26800]]

the COVID-19 public health emergency on a recipient's revenue, rather 
than relying on financial reporting prepared by each recipient, which 
vary in methodology used and which generally aggregates revenue by 
purpose rather than by source.\117\
---------------------------------------------------------------------------

    \116\ The interim final rule would define tax revenue in a 
manner consistent with the Census Bureau's definition of tax 
revenue, with certain changes (i.e., inclusion of revenue from 
liquor stores and certain intergovernmental transfers). 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 liquor 
store, utility, and insurance trust revenue), including rents, 
royalties, lottery proceeds, and fines.
    \117\ Fund-oriented reporting, such as what is used under the 
Governmental Accounting Standards Board (GASB), focuses on the types 
of uses and activities funded by the revenue, as opposed to the 
economic activity from which the revenue is sourced. See 
Governmental Accounting Standards Series, Statement No. 54 of the 
Governmental Accounting Standards Board: Fund Balance Reporting and 
Governmental Fund Type Definitions, No. 287-B (Feb. 2009).
---------------------------------------------------------------------------

    Consistent with the Census Bureau's definition of ``general revenue 
from own sources,'' the definition of general revenue in the interim 
final rule would exclude refunds and other correcting transactions, 
proceeds from issuance of debt or the sale of investments, and agency 
or private trust transactions. The definition of general revenue also 
would exclude revenue generated by utilities and insurance trusts. In 
this way, the definition of general revenue focuses on sources that are 
generated from economic activity and are available to fund government 
services, rather than a fund or administrative unit established to 
account for and control a particular activity.\118\ For example, public 
utilities typically require financial support from the State, local, or 
Tribal government, rather than providing revenue to such government, 
and any revenue that is generated by public utilities typically is used 
to support the public utility's continued operation, rather than being 
used as a source of revenue to support government services generally.
---------------------------------------------------------------------------

    \118\ Supra note 116.
---------------------------------------------------------------------------

    The definition of general revenue would include all revenue from 
Tribal enterprises, as this revenue is generated from economic activity 
and is available to fund government services. Tribes are not able to 
generate revenue through taxes in the same manner as State and local 
governments and, as a result, Tribal enterprises are critical sources 
of revenue for Tribal governments that enable Tribal governments to 
provide a range of services, including elder care, health clinics, 
wastewater management, and forestry.
    Finally, the term ``general revenue'' includes intergovernmental 
transfers between State and local governments, but excludes 
intergovernmental transfers from the Federal Government, including 
Federal transfers made via a State to a local government pursuant to 
the CRF or as part of the Fiscal Recovery Funds. States and local 
governments often share or collect revenue on behalf of one another, 
which results in intergovernmental transfers. When attributing revenue 
to a unit of government, the Census Bureau's methodology considers 
which unit of government imposes, collects, and retains the revenue and 
assigns the revenue to the unit of government that meets at least two 
of those three factors.\119\ For purposes of measuring loss in general 
revenue due to the COVID-19 public health emergency and to better allow 
continued provision of government services, the retention and ability 
to use the revenue is a more critical factor. Accordingly, and to 
better measure the funds available for the provision of government 
services, the definition of general revenue would include 
intergovernmental transfers from States or local governments other than 
funds transferred pursuant to ARPA, CRF, or another Federal program. 
This formulation recognizes the importance of State transfers for local 
government revenue.\120\
---------------------------------------------------------------------------

    \119\ U.S. Census Bureau, Government Finance and Employment 
Classification Manual (Dec. 2000), https://www2.census.gov/govs/class/classfull.pdf.
    \120\ For example, in 2018, state transfers to localities 
accounted for approximately 27 percent of local revenues. U.S. 
Census Bureau, Annual Survey of State and Local Government Finances, 
Table 1 (2018), https://www.census.gov/data/datasets/2018/econ/local/public-use-datasets.html.
---------------------------------------------------------------------------

    Calculation of Loss. In general, recipients will compute the extent 
of the reduction in revenue by comparing actual revenue to a 
counterfactual trend representing what could have been expected to 
occur in the absence of the pandemic. This approach measures losses in 
revenue relative to the most recent fiscal year prior to the COVID-19 
public health emergency by using the most recent pre-pandemic fiscal 
year as the starting point for estimates of revenue growth absent the 
pandemic. In other words, the counterfactual trend starts with the last 
full fiscal year prior to the COVID-19 public health emergency and then 
assumes growth at a constant rate in the subsequent years. Because 
recipients can estimate the revenue shortfall at multiple points in 
time throughout the covered period as revenue is collected, this 
approach accounts for variation across recipients in the timing of 
pandemic impacts.\121\ Although revenue may decline for reasons 
unrelated to the COVID-19 public health emergency, to minimize the 
administrative burden on recipients and taking into consideration the 
devastating effects of the COVID-19 public health emergency, any 
diminution in actual revenues relative to the counterfactual pre-
pandemic trend would be presumed to have been due to the COVID-19 
public health emergency.
---------------------------------------------------------------------------

    \121\ For example, following the 2007-09 recession, local 
government property tax collections did not begin to decline until 
2011, suggesting that property tax collection declines can lag 
downturns. See U.S. Bureau of Economic Analysis, Personal current 
taxes: State and local: Property taxes [S210401A027NBEA], retrieved 
from Federal Reserve Economic Data, Federal Reserve Bank of St. 
Louis, https://fred.stlouisfed.org/graph/?g=r3YI (last visited Apr. 
22, 2021). Estimating the reduction in revenue at points throughout 
the covered period will allow for this type of lagged effect to be 
taken into account during the covered period.
---------------------------------------------------------------------------

    For purposes of measuring revenue growth in the counterfactual 
trend, recipients may use a growth adjustment of either 4.1 percent per 
year or the recipient's average annual revenue growth over the three 
full fiscal years prior to the COVID-19 public health emergency, 
whichever is higher. The option of 4.1 percent represents the average 
annual growth across all State and local government ``General Revenue 
from Own Sources'' in the most recent three years of available 
data.\122\ This approach provides recipients with 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.
---------------------------------------------------------------------------

    \122\ Together with revenue from liquor stores from 2015 to 
2018. This estimate does not include any intergovernmental 
transfers. A recipient using the three-year average to calculate 
their growth adjustment must be based on the definition of general 
revenue, including treatment of intergovernmental transfers. 2015-
2018 represents the most recent available data. See U.S. Census 
Bureau, State & Local Government Finance Historical Datasets and 
Tables (2018), https://www.census.gov/programs-surveys/gov-finances/data/datasets.html.
---------------------------------------------------------------------------

    Recipients should calculate the extent of the reduction in revenue 
as of four points in time: December 31, 2020; December 31, 2021; 
December 31, 2022; and December 31, 2023. To calculate the extent of 
the reduction in revenue at each of these dates, recipients should 
follow a four-step process:
     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.
     Step 2: Estimate counterfactual revenue, which is equal to 
base year revenue * [(1 + growth adjustment) [supcaret] (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 4.1 percent 
and the recipient's average annual revenue growth in the three full 
fiscal

[[Page 26801]]

years prior to the COVID-19 public health emergency.
     Step 3: Identify actual revenue, which equals revenues 
collected over the past twelve months as of the calculation date.
     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. In Step 2, the hypothetical recipient finds that 
4.1 percent is greater than the recipient's average annual revenue 
growth in the three full fiscal years prior to the public health 
emergency. Furthermore, this recipient's base year ends June 30. 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:.........................           106.2           110.6           115.1           119.8
----------------------------------------------------------------------------------------------------------------

    The overall methodology for calculating the reduction in revenue is 
illustrated in the figure below:
[GRAPHIC] [TIFF OMITTED] TR17MY21.002

Upon receiving Fiscal Recovery Fund payments, recipients may 
immediately calculate revenue loss for the period ending December 31, 
2020.
    Sections 602(c)(1)(C) and 603(c)(1)(C) of the Act provide 
recipients with broad latitude to use the Fiscal Recovery Funds for the 
provision of government services. Government services can include, but 
are not limited to, maintenance or pay-go funded building \123\ 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, expenses associated with obligations 
under instruments evidencing financial indebtedness for borrowed money 
would not be considered the provision of government services, as these 
financing expenses do not directly provide services or aid to citizens. 
Specifically, government 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. That is, 
satisfaction of a settlement or judgment itself is not a government 
service, unless the settlement required the provision of government 
services. 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.
---------------------------------------------------------------------------

    \123\ 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.
---------------------------------------------------------------------------

    Question 13: Are there sources of revenue that either should or 
should not be included in the interim final rule's measure of ``general 
revenue'' for recipients? If so, discuss why these sources either 
should or should not be included.
    Question 14: In the interim final rule, recipients are expected to 
calculate the reduction in revenue on an aggregate basis. Discuss the 
advantages and disadvantages of, and any potential concerns with, this 
approach, including circumstances in which it could be necessary or 
appropriate to calculate the reduction in revenue by source.
    Question 15: Treasury is considering 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-

[[Page 26802]]

19 public health emergency. Discuss the advantages and disadvantages of 
this presumption, including when, if ever, during the covered period it 
would be appropriate to reevaluate the presumption that all losses are 
attributable to the COVID-19 public health emergency.
    Question 16: Do recipients anticipate lagged revenue effects of the 
public health emergency? If so, when would these lagged effects be 
expected to occur, and what can Treasury to do support these recipients 
through its implementation of the program?
    Question 17: In the interim final rule, paying interest or 
principal on government debt is not considered provision of a 
government service. Discuss the advantages and disadvantages of this 
approach, including circumstances in which paying interest or principal 
on government debt could be considered provision of a government 
service.

D. Investments in Infrastructure

    To assist in meeting the critical need for investments and 
improvements to existing infrastructure in water, sewer, and broadband, 
the Fiscal Recovery Funds provide funds to State, local, and Tribal 
governments to make necessary investments in these sectors. The interim 
final rule outlines eligible uses within each category, allowing for a 
broad range of necessary investments in projects that improve access to 
clean drinking water, improve wastewater and stormwater infrastructure 
systems, and provide access to high-quality broadband service. 
Necessary investments are designed to provide an adequate minimum level 
of service and are unlikely to be made using private sources of funds. 
Necessary investments include projects that are required to maintain a 
level of service that, at least, meets applicable health-based 
standards, taking into account resilience to climate change, or 
establishes or improves broadband service to unserved or 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.\124\
---------------------------------------------------------------------------

    \124\ Treasury notes that using funds to support or oppose 
collective bargaining would not be included as part of ``necessary 
investments in water, sewer, or broadband infrastructure.''
---------------------------------------------------------------------------

    It is important that necessary investments in water, sewer, or 
broadband infrastructure be carried out in ways that produce high-
quality infrastructure, avert disruptive and costly delays, and promote 
efficiency. Treasury encourages recipients to ensure that water, sewer, 
and broadband projects use strong labor standards, including project 
labor agreements and community benefits agreements that offer wages at 
or above the prevailing rate and include local hire provisions, not 
only to promote effective and efficient delivery of high-quality 
infrastructure projects but also to support the economic recovery 
through strong employment opportunities for workers. Using these 
practices in construction projects may help to ensure a reliable supply 
of skilled labor that would minimize disruptions, such as those 
associated with labor disputes or workplace injuries.
    To provide public transparency on whether projects are using 
practices that promote on-time and on-budget delivery, Treasury will 
seek information from recipients on their workforce plans and practices 
related to water, sewer, and broadband projects undertaken with Fiscal 
Recovery Funds. Treasury will provide additional guidance and 
instructions on the reporting requirements at a later date.
1. Water and Sewer Infrastructure
    The ARPA provides funds to State, local, and Tribal governments to 
make necessary investments in water and sewer infrastructure.\125\ By 
permitting funds to be used for water and sewer infrastructure needs, 
Congress recognized the critical role that clean drinking water and 
services for the collection and treatment of wastewater and stormwater 
play in protecting public health. Understanding that State, local, and 
Tribal governments have a broad range of water and sewer infrastructure 
needs, the interim final rule provides these governments with wide 
latitude to identify investments in water and sewer infrastructure that 
are of the highest priority for their own communities, which may 
include projects on privately-owned infrastructure. The interim final 
rule does this by aligning eligible uses of the Fiscal Recovery Funds 
with the wide range of types or categories of projects that would be 
eligible to receive financial assistance through the Environmental 
Protection Agency's (EPA) Clean Water State Revolving Fund (CWSRF) or 
Drinking Water State Revolving Fund (DWSRF).\126\
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    \125\ Sections 602(c)(1)(D), 603(c)(1)(D) of the Act.
    \126\ Environmental Protection Agency, Drinking Water State 
Revolving fund, https://www.epa.gov/dwsrf (last visited Apr. 30, 
2021); Environmental Protection Agency, Clean Water State Revolving 
Fund, https://www.epa.gov/cwsrf (last visited Apr. 30, 2021).
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    Established by the 1987 amendments \127\ to the Clean Water Act 
(CWA),\128\ the CWSRF provides financial assistance for a wide range of 
water infrastructure projects to improve water quality and address 
water pollution in a way that enables each State to address and 
prioritize the needs of their populations. The types of projects 
eligible for CWSRF assistance include projects to construct, improve, 
and repair wastewater treatment plants, control non-point sources of 
pollution, improve resilience of infrastructure to severe weather 
events, create green infrastructure, and protect waterbodies from 
pollution.\129\ Each of the 51 State programs established under the 
CWSRF have the flexibility to direct funding to their particular 
environmental needs, and each State may also have its own statutes, 
rules, and regulations that guide project eligibility.\130\
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    \127\ Water Quality Act of 1987, Public Law 100-4.
    \128\ Federal Water Pollution Control Act as amended, codified 
at 33 U.S.C. 1251 et seq., common name (Clean Water Act). In 2009, 
the American Recovery and Reinvestment Act created the Green Project 
Reserve, which increased the focus on green infrastructure, water 
and energy efficient, and environmentally innovative projects. 
Public Law 111-5. The CWA was amended by the Water Resources Reform 
and Development Act of 2014 to further expand the CWSRF's 
eligibilities. Public Law 113-121. The CWSRF's eligibilities were 
further expanded in 2018 by the America's Water Infrastructure Act 
of 2018, Public Law 115-270.
    \129\ See Environmental Protection Agency, The Drinking Water 
State Revolving Funds: Financing America's Drinking Water, EPA-816-
R-00-023 (Nov. 2000), https://nepis.epa.gov/Exe/ZyPDF.cgi/200024WB.PDF?Dockey=200024WB.PDF; See also Environmental Protection 
Agency, Learn About the Clean Water State Revolving Fund, https://www.epa.gov/cwsrf/learn-about-clean-water-state-revolving-fund-cwsrf 
(last visited Apr. 30, 2021).
    \130\ 33 U.S.C. 1383(c). See also Environmental Protection 
Agency, Overview of Clean Water State Revolving Fund Eligibilities 
(May 2016), https://www.epa.gov/sites/production/files/2016-07/documents/overview_of_cwsrf_eligibilities_may_2016.pdf; Claudia 
Copeland, Clean Water Act: A Summary of the Law, Congressional 
Research Service (Oct. 18, 2016), https://fas.org/sgp/crs/misc/RL30030.pdf; Jonathan L Ramseur, Wastewater Infrastructure: 
Overview, Funding, and Legislative Developments, Congressional 
Research Service (May 22, 2018), https://fas.org/sgp/crs/misc/R44963.pdf.
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    The DWSRF was modeled on the CWSRF and created as part of the 1996 
amendments to the Safe Drinking Water Act (SDWA),\131\ with the 
principal objective of helping public water systems obtain financing 
for improvements necessary to protect public health and comply with 
drinking water regulations.\132\ Like the CWSRF,

[[Page 26803]]

the DWSRF provides States with the flexibility to meet the needs of 
their populations.\133\ The primary use of DWSRF funds is to assist 
communities in making water infrastructure capital improvements, 
including the installation and replacement of failing treatment and 
distribution systems.\134\ In administering these programs, States must 
give priority to projects that ensure compliance with applicable health 
and environmental safety requirements; address the most serious risks 
to human health; and assist systems most in need on a per household 
basis according to State affordability criteria.\135\
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    \131\ 42 U.S.C. 300j-12.
    \132\ Environmental Protection Agency, Drinking Water State 
Revolving Fund Eligibility Handbook, (June 2017), https://www.epa.gov/sites/production/files/2017-06/documents/dwsrf_eligibility_handbook_june_13_2017_updated_508_version.pdf; 
Environmental Protection Agency, Drinking Water Infrastructure Needs 
Survey and Assessment: Sixth Report to Congress (March 2018), 
https://www.epa.gov/sites/production/files/2018-10/documents/corrected_sixth_drinking_water_infrastructure_needs_survey_and_assessment.pdf.
    \133\ Id.
    \134\ Id.
    \135\ 42 U.S.C. 300j-12(b)(3)(A).
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    By aligning use of Fiscal Recovery Funds with the categories or 
types of eligible projects under the existing EPA state revolving fund 
programs, the interim final rule provides recipients with the 
flexibility to respond to the needs of their communities while ensuring 
that investments in water and sewer infrastructure made using Fiscal 
Recovery Funds are necessary. As discussed above, the CWSRF and DWSRF 
were designed to provide funding for projects that protect public 
health and safety by ensuring compliance with wastewater and drinking 
water health standards.\136\ The need to provide funding through the 
state revolving funds suggests that these projects are less likely to 
be addressed with private sources of funding; for example, by 
remediating failing or inadequate infrastructure, much of which is 
publicly owned, and by addressing non-point sources of pollution. This 
approach of aligning with the EPA state revolving fund programs also 
supports expedited project identification and investment so that needed 
relief for the people and communities most affected by the pandemic can 
deployed expeditiously and have a positive impact on their health and 
wellbeing as soon as possible. Further, the interim final rule is 
intended to preserve flexibility for award recipients to direct funding 
to their own particular needs and priorities and would not preclude 
recipients from applying their own additional project eligibility 
criteria.
---------------------------------------------------------------------------

    \136\ Environmental Protection Agency, Learn About the Clean 
Water State Revolving Fund, https://www.epa.gov/cwsrf/learn-about-clean-water-state-revolving-fund-cwsrf (last visited Apr. 30, 2021); 
42 U.S.C. 300j-12.
---------------------------------------------------------------------------

    In addition, responding to the immediate needs of the COVID-19 
public health emergency may have diverted both personnel and financial 
resources from other State, local, and Tribal priorities, including 
projects to ensure compliance with applicable water health and quality 
standards and provide safe drinking and usable water.\137\ Through 
sections 602(c)(1)(D) and 603(c)(1)(D), the ARPA provides resources to 
address these needs. Moreover, using Fiscal Recovery Funds in 
accordance with the priorities of the CWA and SWDA to ``assist systems 
most in need on a per household basis according to state affordability 
criteria'' would also have the benefit of providing vulnerable 
populations with safe drinking water that is critical to their health 
and, thus, their ability to work and learn.\138\
---------------------------------------------------------------------------

    \137\ House Committee on the Budget, State and Local Governments 
are in Dire Need of Federal Relief (Aug. 19, 2020), https://budget.house.gov/publications/report/state-and-local-governments-are-dire-need-federal-relief.
    \138\ Environmental Protection Agency, Drinking Water State 
Revolving Fund (Nov. 2019), https://www.epa.gov/sites/production/files/2019-11/documents/fact_sheet_-_dwsrf_overview_final_0.pdf; 
Environmental Protection Agency, National Benefits Analysis for 
Drinking Water Regulations, https://www.epa.gov/sdwa/national-benefits-analysis-drinking-water-regulations (last visited Apr. 30, 
2020).
---------------------------------------------------------------------------

    Recipients may use Fiscal Recovery Funds to invest in 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. Given the 
lifelong impacts of lead exposure for children, and the widespread 
nature of lead service lines, Treasury encourages recipients to 
consider projects to replace lead service lines.
    Fiscal Recovery Funds may also be used to support the consolidation 
or establishment of drinking water systems. With respect to wastewater 
infrastructure, recipients may use Fiscal Recovery Funds to construct 
publicly owned treatment infrastructure, manage and treat stormwater or 
subsurface drainage water, facilitate water reuse, and secure publicly 
owned treatment works, among other uses. Finally, consistent with the 
CWSRF and DWSRF, Fiscal Recovery 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.
    Many of the types of projects eligible under either the CWSRF or 
DWSRF 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 the ARPA may reduce energy required to 
treat drinking water. Similarly, projects eligible under the CWSRF 
include measures to conserve and reuse water or reduce the energy 
consumption of public water treatment facilities. 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 rain gardens 
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 Fiscal Recovery Funds to provide 
relief, such as interconnecting water systems or rehabilitating 
existing wells during an extended drought.
    Question 18: What are the advantages and disadvantages of aligning 
eligible uses with the eligible project type requirements of the DWSRF 
and CWSRF? What other water or sewer project categories, if any, should 
Treasury consider in addition to DWSRF and CWSRF eligible projects? 
Should Treasury consider a broader general category of water and sewer 
projects?
    Question 19: What additional water and sewer infrastructure 
categories, if any, should Treasury consider to address and respond to 
the needs of unserved, undeserved, or rural communities? How do these 
projects differ from DWSFR and CWSRF eligible projects?
    Question 20: What new categories of water and sewer infrastructure, 
if any, should Treasury consider to support State, local, and Tribal 
governments in mitigating the negative impacts of climate change? 
Discuss emerging technologies and processes that support resiliency of 
water and sewer infrastructure. Discuss any challenges faced by States 
and local governments when pursuing or implementing climate resilient 
infrastructure projects.
    Question 21: Infrastructure projects related to dams and reservoirs 
are generally not eligible under the CWSRF and DWSRF categories. Should 
Treasury consider expanding eligible

[[Page 26804]]

infrastructure under the interim final rule to include dam and 
reservoir projects? Discuss public health, environmental, climate, or 
equity benefits and costs in expanding the eligibility to include these 
types of projects.
2. Broadband Infrastructure
    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 critical activities, remote school, healthcare, 
and work. Recognizing the need for such connectivity, the ARPA provides 
funds to State, territorial, local, and Tribal governments to make 
necessary investments in broadband infrastructure.
    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 access service for every facet of 
daily life including work, study, and healthcare.\139\ 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.
---------------------------------------------------------------------------

    \139\ See, e.g., https://www.ntia.gov/blog/2020/more-half-american-households-used-internet-health-related-activities-2019-ntia-data-show; https://www.ntia.gov/blog/2020/nearly-third-american-employees-worked-remotely-2019-ntia-data-show; and 
generally, https://www.ntia.gov/data/digital-nation-data-explorer.
---------------------------------------------------------------------------

    By at least one measure, however, tens of millions of Americans 
live in areas where there is no broadband infrastructure that provides 
download speeds greater than 25 Mbps and upload speeds of 3 Mbps.\140\ 
By contrast, as noted below, many households use upload and download 
speeds of 100 Mbps to meet their daily needs. 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).\141\ There are 
disparities in availability as well; historically, Americans living in 
territories and Tribal lands as well as rural areas have 
disproportionately lacked sufficient broadband infrastructure.\142\ 
Moreover, rapidly growing demand has, and will likely continue to, 
quickly outpace infrastructure capacity, a phenomenon acknowledged by 
various states around the country that have set scalability 
requirements to account for this anticipated growth in demand.\143\
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    \140\ As an example, 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. Availability was significantly less for rural versus urban 
populations, with 35.57 percent of the rural population lacking such 
access, compared with 2.57 percent of the urban population. 
Availability was also significantly less for tribal versus non-
tribal populations, with 35.93 percent of the tribal population 
lacking such access, compared with 8.74 of the non-tribal 
population. Federal Communications Commission, Fixed Broadband 
Deployment, https://broadbandmap.fcc.gov/#/ (last visited May 9, 
2021).
    \141\ How Do U.S. Internet Costs Compare To The Rest Of The 
World?, BroadbandSearch Blog Post, available at https://www.broadbandsearch.net/blog/internet-costs-compared-worldwide.
    \142\ See, e.g., Federal Communications Commission, Fourteenth 
Broadband Deployment Report, available at https://docs.fcc.gov/public/attachments/FCC-21-18A1.pdf.
    \143\ See, e.g., Illinois Department of Commerce & Economic 
Opportunity, Broadband Grants, h (last visited May 9, 2021), https://www2.illinois.gov/dceo/ConnectIllinois/Pages/BroadbandGrants.aspx; 
Kansas Office of Broadband Development, Broadband Acceleration 
Grant, https://www.kansascommerce.gov/wp-content/uploads/2020/11/Broadband-Acceleration-Grant.pdf (last visited May 9, 2021); New 
York State Association of Counties, Universal Broadband: Deploying 
High Speed Internet Access in NYS (Jul. 2017), https://www.nysac.org/files/BroadbandUpdateReport2017(1).pdf.
---------------------------------------------------------------------------

    The interim final rule provides that eligible investments in 
broadband are those that are designed to provide services meeting 
adequate speeds and are provided to unserved and underserved households 
and businesses. Understanding that States, territories, localities, and 
Tribal governments have a wide range of varied broadband infrastructure 
needs, the interim final rule provides award recipients with 
flexibility to identify the specific locations within their communities 
to be served and to otherwise design the project.
    Under the interim final rule, eligible projects are expected to be 
designed to deliver, upon project completion, service that reliably 
meets or exceeds symmetrical upload and download speeds of 100 Mbps. 
There may be instances in which 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. In these 
instances, the affected project would be expected to be designed to 
deliver, upon project completion, service that reliably meets or 
exceeds 100 Mbps download 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.\144\ In setting these standards, Treasury 
identified speeds necessary to ensure that broadband infrastructure is 
sufficient to enable users to generally meet household needs, including 
the ability to support the simultaneous use of work, education, and 
health applications, and also sufficiently robust to meet increasing 
household demands for bandwidth. Treasury also recognizes that 
different communities and their members may have a broad range of 
internet needs and that those needs may change over time.
---------------------------------------------------------------------------

    \144\ This scalability threshold is consistent with scalability 
requirements used in other jurisdictions. Id.
---------------------------------------------------------------------------

    In considering the appropriate speed requirements for eligible 
projects, Treasury considered estimates of typical households demands 
during the pandemic. Using the Federal Communication Commission's (FCC) 
Broadband Speed Guide, for example, a household with two telecommuters 
and two to three remote learners today are estimated to need 100 Mbps 
download to work simultaneously.\145\ In households with more members, 
the demands may be greater, and in households with fewer members, the 
demands may be less.
---------------------------------------------------------------------------

    \145\ Federal Communications Commission, Broadband Speed Guide, 
https://www.fcc.gov/consumers/guides/broadband-speed-guide (last 
visited Apr. 30, 2021).
---------------------------------------------------------------------------

    In considering the appropriate speed requirements for eligible 
projects, Treasury also considered data usage patterns and how 
bandwidth needs have changed over time for U.S. households and 
businesses as people's use of technology in their daily lives has 
evolved. In the few years preceding the pandemic, market research data 
showed that average upload speeds in the United States surpassed over 
10 Mbps in 2017 \146\ and continued to increase significantly, with the 
average upload speed as of November, 2019 increasing to 48.41 
Mbps,\147\ attributable, in part to a shift to using broadband and the 
internet by individuals and businesses

[[Page 26805]]

to create and share content using video sharing, video conferencing, 
and other applications.\148\
---------------------------------------------------------------------------

    \146\ Letter from Lisa R. Youngers, President and CEO of Fiber 
Broadband Association to FCC, WC Docket No. 19-126 (filed Jan. 3, 
2020), including an Appendix with research from RVA LLC, Data Review 
Of The Importance of Upload Speeds (Jan. 2020), and Ookla speed test 
data, available at https://ecfsapi.fcc.gov/file/101030085118517/FCC%20RDOF%20Jan%203%20Ex%20Parte.pdf.Additional information on 
historic growth in data usage is provided in Schools, Health & 
Libraries Broadband Coalition, Common Sense Solutions for Closing 
the Digital Divide, Apr. 29, 2021.
    \147\ Id. See also United States's Mobile and Broadband internet 
Speeds--Speedtest Global Index, available at https://www.speedtest.net/global-index/united-states#fixed.
    \148\ Id.
---------------------------------------------------------------------------

    The increasing use of data accelerated markedly during the pandemic 
as households across the country became increasingly reliant on tools 
and applications that require greater internet capacity, both to 
download data but also to upload data. Sending information became as 
important as receiving it. A video consultation with a healthcare 
provider or participation by a child in a live classroom with a teacher 
and fellow students requires video to be sent and received 
simultaneously.\149\ As an example, some video conferencing technology 
platforms indicate that download and upload speeds should be roughly 
equal to support two-way, interactive video meetings.\150\ For both 
work and school, client materials or completed school assignments, 
which may be in the form of PDF files, videos, or graphic files, also 
need to be shared with others. This is often done by uploading 
materials to a collaboration site, and the upload speed available to a 
user can have a significant impact on the time it takes for the content 
to be shared with others. \151\ These activities require significant 
capacity from home internet connections to both download and upload 
data, especially when there are multiple individuals in one household 
engaging in these activities simultaneously.
---------------------------------------------------------------------------

    \149\ One high definition Zoom meeting or class requires 
approximately 3.8 Mbps/3.0 Mbps (up/down).
    \150\ See, e.g., Zoom, System Requirements for Windows, macOS, 
and Linux, https://support.zoom.us/hc/en-us/articles/201362023-System-requirements-for-Windows-macOS-and-Linux#h_d278c327-e03d-4896-b19a-96a8f3c0c69c (last visited May 8, 2021).
    \151\ By one estimate, to upload a one gigabit video file to 
YouTube would take 15 minutes at an upload speed of 10 Mbps compared 
with 1 minute, 30 seconds at an upload speed of 100 Mbps, and 30 
seconds at an upload speed of 300 Mbps. Reviews.org: What is 
Symmetrical internet? (March 2020).
---------------------------------------------------------------------------

    This need for increased broadband capacity during the pandemic was 
reflected in increased usage patterns seen over the last year. As 
OpenVault noted in recent advisories, the pandemic significantly 
increased the amount of data users consume. Among data users observed 
by OpenVault, per-subscriber average data usage for the fourth quarter 
of 2020 was 482.6 gigabytes per month, representing a 40 percent 
increase over the 344 gigabytes consumed in the fourth quarter of 2019 
and a 26 percent increase over the third quarter 2020 average of 383.8 
gigabytes.\152\ OpenVault also noted significant increases in upstream 
usage among the data users it observed, with upstream data usage 
growing 63 percent--from 19 gigabytes to 31 gigabytes--between 
December, 2019 and December, 2020.\153\ According to an OECD Broadband 
statistic from June 2020, the largest percentage of U.S. broadband 
subscribers have services providing speeds between 100 Mbps and 1 
Gbps.\154\
---------------------------------------------------------------------------

    \152\ OVBI: Covid-19 Drove 15 percent Increase in Broadband 
Traffic in 2020, OpenVault, Quarterly Advisory, (Feb. 10, 2021), 
available at https://openvault.com/ovbi-covid-19-drove-51-increase-in-broadband-traffic-in-2020; See OpenVault's data set incorporates 
information on usage by subscribers across multiple continents, 
including North America and Europe. Additional data and detail on 
increases in the amount of data users consume and the broadband 
speeds they are using is provided in OpenVault Broadband Insights 
Report Q4, Quarterly Advisory (Feb. 10, 2021), available at https://openvault.com/complimentary-report-4q20/.
    \153\ OVBI Special Report: 202 Upstream Growth Nearly 4X of Pre-
Pandemic Years, OpenVault, Quarterly Advisory, (April 1, 20201), 
available at https://openvault.com/ovbi-special-report-2020-upstream-growth-rate-nearly-4x-of-pre-pandemic-years/; Additional 
data is provided in OpenVault Broadband Insights Pandemic Impact on 
Upstream Broadband Usage and Network Capacity, available at https://openvault.com/upstream-whitepaper/.
    \154\ Organisation for Economic Co-operation and Development, 
Fixed broadband subscriptions per 100 inhabitants, per speed tiers 
(June 2020), https://www.oecd.org/sti/broadband/5.1-FixedBB-SpeedTiers-2020-06.xls www.oecd.org/sti/broadband/broadband-statistics.
---------------------------------------------------------------------------

    Jurisdictions and Federal programs are increasingly responding to 
the growing demands of their communities for both heightened download 
and upload speeds. For example, Illinois now requires 100 Mbps 
symmetrical service as the construction standard for its state 
broadband grant programs. This standard is also consistent with speed 
levels, particularly download speed levels, prioritized by other 
Federal programs supporting broadband projects. Bids submitted as part 
of the FCC in its Rural Digital Opportunity Fund (RDOF), established to 
support the construction of broadband networks in rural communities 
across the country, are given priority if they offer faster service, 
with the service offerings of 100 Mbps download and 20 Mbps upload 
being included in the ``above baseline'' performance tier set by the 
FCC.\155\ The Broadband Infrastructure Program (BBIP) \156\ of the 
Department of Commerce, which provides Federal funding to deploy 
broadband infrastructure to eligible service areas of the country also 
prioritizes projects designed to provide broadband service with a 
download speed of not less than 100 Mbps and an upload speed of not 
less than 20 Mbps.\157\
---------------------------------------------------------------------------

    \155\ Rural Digital Opportunity Fund, Report and Order, 35 FCC 
Rcd 686, 690, para. 9 (2020), available at https://www.fcc.gov/document/fcc-launches-20-billion-rural-digital-opportunity-fund-0.
    \156\ The BIPP was authorized by the Consolidated Appropriations 
Act, 2021, Section 905, Public Law 116-260, 134 Stat. 1182 (Dec. 27, 
2020).
    \157\ Section 905(d)(4) of the Consolidated Appropriations Act, 
2021.
---------------------------------------------------------------------------

    The 100 Mbps upload and download speeds will support the increased 
and growing needs of households and businesses. Recognizing that, in 
some instances, 100 Mbps upload speed may be impracticable due to 
geographical, topographical, or financial constraints, the interim 
final rule permits upload speeds of between at least 20 Mbps and 100 
Mbps in such instances. To provide for investments that will 
accommodate technologies requiring symmetry in download and upload 
speeds, as noted above, eligible projects that are not designed to 
deliver, upon project completion, service that reliably meets or 
exceeds symmetrical speeds of 100 Mbps because it would be 
impracticable to do so should be designed so that they can be scalable 
to such speeds. Recipients are also encouraged to prioritize 
investments in fiber optic infrastructure where feasible, as such 
advanced technology enables the next generation of application 
solutions for all communities.
    Under the interim final rule, eligible projects are expected to 
focus on locations that are unserved or underserved. The interim final 
rule treats users as being unserved or underserved if they lack access 
to a wireline connection capable of reliably delivering at least 
minimum speeds of 25 Mbps download and 3 Mbps upload as households and 
businesses lacking this level of access are generally not viewed as 
being able to originate and receive high-quality voice, data, graphics, 
and video telecommunications. This threshold is consistent with the 
FCC's benchmark for an ``advanced telecommunications capability.'' 
\158\ This threshold is also consistent with thresholds used in other 
Federal programs to identify eligible areas to be served by programs to 
improve broadband services. For example, in the FCC's RDOF program, 
eligible areas include those without current (or already funded) access 
to terrestrial broadband service providing 25 Mbps download and 3 Mbps 
upload speeds.\159\ The Department of Commerce's BBIP also considers 
households to be ``unserved'' generally if they lack access to 
broadband service

[[Page 26806]]

with a download speed of not less than 25 Mbps download and 3 Mbps 
upload, among other conditions. In selecting an area to be served by a 
project, recipients are encouraged to avoid investing in locations that 
have 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.
---------------------------------------------------------------------------

    \158\ Deployment Report, supra note 142.
    \159\ Rural Digital Opportunity Fund, supra note 156.
---------------------------------------------------------------------------

    Recipients are also encouraged to consider ways to integrate 
affordability options into their program design. To meet the immediate 
needs of unserved and underserved households and businesses, recipients 
are encouraged to focus on projects that deliver a physical broadband 
connection by prioritizing projects that achieve last mile-connections. 
Treasury also encourages recipients to prioritize support for broadband 
networks owned, operated by, or affiliated with local governments, non-
profits, and co-operatives--providers with less pressure to turn 
profits and with a commitment to serving entire communities.
    Under sections 602(c)(1)(A) and 603(c)(1)(A), assistance to 
households facing negative economic impacts due to COVID-19 is also an 
eligible use, including internet access or digital literacy assistance. 
As discussed above, in considering whether a potential use is eligible 
under this category, a recipient must consider whether, and the extent 
to which, the household has experienced a negative economic impact from 
the pandemic.
    Question 22: What are the advantages and disadvantages of setting 
minimum symmetrical download and upload speeds of 100 Mbps? What other 
minimum standards would be appropriate and why?
    Question 23: Would setting such a minimum be impractical for 
particular types of projects? If so, where and on what basis should 
those projects be identified? How could such a standard be set while 
also taking into account the practicality of using this standard in 
particular types of projects? In addition to topography, geography, and 
financial factors, what other constraints, if any, are relevant to 
considering whether an investment is impracticable?
    Question 24: What are the advantages and disadvantages of setting a 
minimum level of service at 100 Mbps download and 20 Mbps upload in 
projects where it is impracticable to set minimum symmetrical download 
and upload speeds of 100 Mbps? What are the advantages and 
disadvantages of setting a scalability requirement in these cases? What 
other minimum standards would be appropriate and why?
    Question 25: What are the advantages and disadvantages of focusing 
these investments on those without access to a wireline connection that 
reliably delivers 25 Mbps download by 3 Mbps upload? Would another 
threshold be appropriate and why?
    Question 26: What are the advantages and disadvantages of setting 
any particular threshold for identifying unserved or underserved areas, 
minimum speed standards or scalability minimum? Are there other 
standards that should be set (e.g., latency)? If so, why and how? How 
can such threshold, standards, or minimum be set in a way that balances 
the public's interest in making sure that reliable broadband services 
meeting the daily needs of all Americans are available throughout the 
country with the providing recipients flexibility to meet the varied 
needs of their communities?

III. Restrictions on Use

    As discussed above, recipients have considerable flexibility to use 
Fiscal Recovery Funds to address the diverse needs of their 
communities. To ensure that payments from the Fiscal Recovery Funds are 
used for these congressionally permitted purposes, the ARPA includes 
two provisions that further define the boundaries of the statute's 
eligible uses. Section 602(c)(2)(A) of the 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.'' In addition, sections 
602(c)(2)(B) and 603(c)(2) prohibit any recipient, including cities, 
nonentitlement units of government, and counties, from using Fiscal 
Recovery Funds for deposit into any pension fund. These restrictions 
support the use of funds for the congressionally permitted purposes 
described in Section II of this Supplementary Information by providing 
a backstop against the use of funds for purposes outside of the 
eligible use categories.
    These provisions give force to Congress's clear intent that Fiscal 
Recovery Funds be spent within the four eligible uses identified in the 
statute--(1) to respond to the public health emergency and its negative 
economic impacts, (2) to provide premium pay to essential workers, (3) 
to provide government services to the extent of eligible governments' 
revenue losses, and (4) to make necessary water, sewer, and broadband 
infrastructure investments--and not otherwise. These four eligible uses 
reflect Congress's judgment that the Fiscal Recovery Funds should be 
expended in particular ways that support recovery from the COVID-19 
public health emergency. The further restrictions reflect Congress's 
judgment that tax cuts and pension deposits do not fall within these 
eligible uses. The interim final rule describes how Treasury will 
identify when such uses have occurred and how it will recoup funds put 
toward these impermissible uses and, as discussed in Section VIII of 
this SUPPLEMENTARY INFORMATION, establishes a reporting framework for 
monitoring the use of Fiscal Recovery Funds for eligible uses.

A. Deposit Into Pension Funds

    The statute provides that recipients may not use Fiscal Recovery 
Funds for ``deposit into any pension fund.'' For the reasons discussed 
below, Treasury interprets ``deposit'' in this context to refer to an 
extraordinary payment into a pension fund for the purpose of reducing 
an accrued, unfunded liability. More specifically, the interim final 
rule does not permit this assistance to be used to make a payment into 
a pension fund if both:
    1. The payment reduces a liability incurred prior to the start of 
the COVID-19 public health emergency, and
    2. the payment occurs outside the recipient's regular timing for 
making such payments.
    Under this interpretation, a ``deposit'' is distinct from a 
``payroll contribution,'' which occurs when employers make payments 
into pension funds on regular intervals, with contribution amounts 
based on a pre-determined percentage of employees' wages and salaries.
    As discussed above, eligible uses for premium pay and responding to 
the negative economic impacts of the COVID-19 public health emergency 
include hiring and compensating public sector employees. Interpreting 
the scope of ``deposit'' to exclude contributions that are part of 
payroll contributions is more consistent with these eligible uses and 
would reduce administrative burden for recipients. Accordingly, if an 
employee's wages and salaries are an eligible use of Fiscal Recovery 
Funds, recipients may treat the employee's covered benefits as an 
eligible use of Fiscal Recovery Funds. For purposes of the Fiscal 
Recovery 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

[[Page 26807]]

(Federal and State), workers' compensation insurance, and Federal 
Insurance Contributions Act taxes (which includes Social Security and 
Medicare taxes).
    Treasury anticipates that this approach to employees' covered 
benefits will be comprehensive and, for employees whose wage and salary 
costs are eligible expenses, will allow all covered benefits listed in 
the previous paragraph to be eligible under the Fiscal Recovery Funds. 
Treasury expects that this will minimize the administrative burden on 
recipients by treating all the specified covered benefit types as 
eligible expenses, for employees whose wage and salary costs are 
eligible expenses.
    Question 27: Beyond a ``deposit'' and a ``payroll contribution,'' 
are there other types of payments into a pension fund that Treasury 
should consider?

B. Offset a Reduction in Net Tax Revenue

    For States and territories (recipient governments \160\), section 
602(c)(2)(A)--the offset provision--prohibits the use of Fiscal 
Recovery Funds to directly or indirectly offset a reduction in net tax 
revenue resulting from a change in law, regulation, or administrative 
interpretation \161\ during the covered period. If a State or territory 
uses Fiscal Recovery Funds to offset a reduction in net tax revenue, 
the ARPA provides that the State or territory must repay to the 
Treasury an amount equal to the lesser of (i) the amount of the 
applicable reduction attributable to the impermissible offset and (ii) 
the amount received by the State or territory under the ARPA. See 
Section IV of this SUPPLEMENTARY INFORMATION. As discussed below 
Section IV of this SUPPLEMENTARY INFORMATION, a State or territory that 
chooses to use Fiscal Recovery Funds to offset a reduction in net tax 
revenue does not forfeit its entire allocation of Fiscal Recovery Funds 
(unless it misused the full allocation to offset a reduction in net tax 
revenue) or any non-ARPA funding received.
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    \160\ 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 Fiscal Recovery Funds.
    \161\ For brevity, referred to as ``changes in law, regulation, 
or interpretation'' for the remainder of this preamble.
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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. A recipient government would only be considered to have used 
Fiscal Recovery 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 the Fiscal Recovery Funds to offset the 
reduction in net tax revenue. 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, 
the remaining amount not covered by these sources will be considered to 
have been offset by Fiscal Recovery Funds, in contravention of the 
offset provision. The interim final rule recognizes three sources of 
funds that may offset a reduction in net tax revenue other than Fiscal 
Recovery Funds--organic growth, increases in revenue (e.g., an increase 
in a tax rate), and certain cuts in spending.
    In order to reduce burden, the interim final rule's approach also 
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 the Fiscal Recovery Funds based on 
information they likely have or can obtain. This approach ensures that 
recipient governments have the information they need to understand the 
implications of their decisions regarding the use of the Fiscal 
Recovery Funds--and, in particular, whether they are using the funds to 
directly or indirectly offset a reduction in net tax revenue, making 
them potentially subject to recoupment.
    Reporting on both the eligible uses and on a State's or territory's 
covered tax changes that would reduce tax revenue will enable 
identification of, and recoupment for, use of Fiscal Recovery Funds to 
directly offset reductions in tax revenue resulting from tax relief. 
Moreover, this approach recognizes that, because money is fungible, 
even if Fiscal Recovery 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. By 
focusing on the cost of changes that reduce net tax revenue--and how a 
recipient government is offsetting those reductions in constructing its 
budget over the covered period--the framework prevents efforts to use 
Fiscal Recovery Funds to indirectly offset reductions in net tax 
revenue for which the recipient government has not identified other 
offsetting sources of funding.
    As discussed in greater detail below in this preamble, the 
framework set forth in the interim final rule establishes a step-by-
step process for determining whether, and the extent to which, Fiscal 
Recovery Funds have been used to offset a reduction in net tax revenue. 
Based on information reported annually by the recipient government:
     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 Fiscal Recovery Funds (total value of 
revenue reducing changes).
     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.
     Third, a recipient government will consider the amount of 
actual tax revenue recorded in the year for which they are 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.
     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 Fiscal Recovery Funds. 
These are:
    [cir] State or territory tax changes that would increase any source 
of general

[[Page 26808]]

fund revenue, such as a change that would increase a tax rate; and
    [cir] Spending cuts in areas not being replaced by Fiscal Recovery 
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 the 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.
     Finally, if there are any amounts that could be subject to 
recoupment, Treasury will provide notice to the recipient government of 
such amounts. This process is discussed in greater detail in Section IV 
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 Fiscal Recovery 
Funds. This process ensures Fiscal Recovery Funds are used in a manner 
consistent with the statute's defined eligible uses and the offset 
provision's limitation on these eligible uses, while avoiding undue 
interference with State and territory decisions regarding tax and 
spending policies.
    The interim final rule also implements a process for recouping 
Fiscal Recovery Funds that were used to offset reductions in net tax 
revenue, including the calculation of any amounts that may be subject 
to recoupment, a process for a recipient government to respond to a 
notice of recoupment, and clarification regarding amounts excluded from 
recoupment. See Section IV of this SUPPLEMENTARY INFORMATION.
    The interim final rule includes several definitions that are 
applicable to the implementation of the offset provision.
    Covered change. The offset provision is triggered by a reduction in 
net tax revenue resulting from ``a change in law, regulation, or 
administrative interpretation.'' A covered change 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 where the phase-in or taking effect was not prescribed prior to 
the start of the covered period. Changed 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 the changes within the control of the State or 
territory are considered covered changes. 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. 
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.\162\ This 
would not be considered a covered change. In addition, 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. Finally, Treasury has determined and previously announced that 
income tax changes--even those made during the covered period--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) are permissible under the offset provision.
---------------------------------------------------------------------------

    \162\ 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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    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 will be 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.\163\
---------------------------------------------------------------------------

    \163\ U.S. Department of Commerce, Bureau of Economic Analysis, 
GDP Price Deflator, https://www.bea.gov/data/prices-inflation/gdp-price-deflator (last visited May 9, 2021).
---------------------------------------------------------------------------

    FY 2019 was chosen as the starting year for the baseline because it 
is the last full fiscal year prior to the COVID-19 public health 
emergency.\164\ This baseline year is consistent with the approach 
directed by the ARPA in 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. U.S. gross domestic product is projected to 
rebound to pre-pandemic levels in 2021,\165\ suggesting that an FY 2019 
pre-pandemic baseline is a reasonable comparator for future revenue 
levels. The FY 2019 baseline revenue will be 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.
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    \164\ Using Fiscal Year 2019 is consistent with section 602 as 
Congress provided for using that baseline for determining the impact 
of revenue loss affecting the provision of government services. See 
section 602(c)(1)(C).
    \165\ Congressional Budget Office, An Overview of the Economic 
Outlook: 2021 to 2031 (February 1, 2021), available at https://www.cbo.gov/publication/56965.
---------------------------------------------------------------------------

    Reporting year. The interim final rule defines ``reporting year'' 
as a single year within the covered period, aligned to the current 
fiscal year of the recipient government during the covered period, for 
which a recipient government reports the value of covered changes and 
any sources of offsetting revenue increases (``in-year'' value), 
regardless of when those changes were enacted. For the fiscal years 
ending in 2021 or 2025 (partial years), the term ``reporting year'' 
refers to the portion of the year falling within the covered period. 
For example, the reporting year for a fiscal year beginning July 2020 
and ending June 2021 would be from March 3, 2021 to July 2021.
    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.\166\ It provides a 
consistent, well-established definition with which States and 
territories will be familiar and is consistent with the approach taken 
in Section II.C of this SUPPLEMENTARY INFORMATION describing the 
implementation of sections 602(c)(1)(C) and 603(c)(1)(C) of the Act, 
regarding revenue loss. Consistent with the approach described in 
Section II.C of this SUPPLEMENTARY INFORMATION, tax

[[Page 26809]]

revenue does not include revenue taxed and collected by a different 
unit of government (e.g., revenue from taxes levied by a local 
government and transferred to a recipient government).
---------------------------------------------------------------------------

    \166\ 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).
---------------------------------------------------------------------------

    Framework. The interim final rule provides a step-by-step 
framework, to be used in each reporting year, to calculate whether the 
offset provision applies to a State's or territory's use of Fiscal 
Recovery Funds:
    (1) Covered changes that reduce tax revenue. For each reporting 
year, a recipient government will identify and value 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 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 relative to a current law 
baseline. 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). Further, estimation 
approaches should not use dynamic methodologies that incorporate the 
projected effects of macroeconomic growth because macroeconomic growth 
is accounted for separately in the framework. Relative to these dynamic 
scoring methodologies, scoring methodologies that do not incorporate 
projected effects of macroeconomic growth rely on fewer assumptions and 
thus provide greater consistency among States and territories. Dynamic 
scoring that incorporates macroeconomic growth may also increase the 
likelihood of underestimation of the cost of a reduction in tax 
revenue.
    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, the approach of using the projected value of changes in law 
that enact fiscal policies to estimate the net effect of such policies 
is consistent with the way many States and territories already consider 
tax changes.\167\
---------------------------------------------------------------------------

    \167\ See, e.g., Megan Randall & Kim Rueben, Tax Policy Center, 
Sustainable Budgeting in the States: Evidence on State Budget 
Institutions and Practices (Nov. 2017), available at https://www.taxpolicycenter.org/sites/default/files/publication/149186/sustainable-budgeting-in-the-states_1.pdf.
---------------------------------------------------------------------------

    (2) In excess of the de minimis. The recipient government will next 
calculate 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 will be 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.
    The de minimis level is calculated as 1 percent of the reporting 
year's baseline. Treasury recognizes that, pursuant to their taxing 
authority, 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. The de minimis level 
recognizes the inherent challenges and uncertainties that recipient 
governments face, and thus allows relatively small reductions in tax 
revenue without consequence. Treasury determined the 1 percent level 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.\168\ The 1 percent de minimis level reflects the 
historical reductions in revenue due to minor changes in state fiscal 
policies.
---------------------------------------------------------------------------

    \168\ Data provided by the Urban-Brookings Tax Policy Center for 
state-level EITC changes for 2004-2017.
---------------------------------------------------------------------------

    (3) Safe harbor. The recipient government will then compare 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 Fiscal Recovery 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, this 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 the covered changes.
    (4) Consideration of other sources of funding. Next, the recipient 
government will 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. As when identifying and valuing covered 
changes that reduce tax revenue, the value of revenue-raising changes 
may be reported based on estimated values produced by a budget model, 
incorporating reasonable assumptions, aligned with the recipient 
government's existing approach for measuring the effects of fiscal 
policies, and measured relative to a current law baseline, or based on 
actual values using a statistical methodology to isolate the change in 
year-over-year revenue attributable to the covered change(s). Further, 
and as discussed above, estimation approaches should not use dynamic 
scoring methodologies that incorporate the effects of macroeconomic 
growth because growth is accounted for separately under the interim 
final rule. 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.
    (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 not in an area where the recipient government has 
spent Fiscal Recovery Funds. To better align with existing reporting 
and accounting, the interim final rule considers the department, 
agency, or

[[Page 26810]]

authority from which spending has been cut and whether the recipient 
government has spent Fiscal Recovery Funds on that same department, 
agency, or authority. This approach was selected to allow recipient 
governments to report how Fiscal Recovery Funds have been spent using 
reporting units already incorporated into their budgeting process. If 
they have not spent Fiscal Recovery 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, the Fiscal Recovery Funds generally would 
be deemed to have replaced the amount of spending cut and only 
reductions in spending above the amount of Fiscal Recovery Funds spent 
on the department, agency, or authority would count.
    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 Fiscal Recovery Funds (net reduction in total spending). This 
approach ensures that reported spending cuts actually create fiscal 
space, rather than simply offsetting other spending increases. A net 
reduction in total spending is measured as the difference between total 
spending in each reporting year, excluding Fiscal Recovery 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. 
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. 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. Treasury chose this approach because while many recipient 
governments may score budget legislation using projections, spending 
cuts are readily observable using actual values.
    This approach--allowing only spending reductions in areas where the 
recipient government has not spent Fiscal Recovery Funds to be used as 
an offset for a reduction in net tax revenue--aims to prevent recipient 
governments from using Fiscal Recovery Funds to supplant State or 
territory funding in the eligible use areas, and then use those State 
or territory funds to offset tax cuts. Such an approach helps ensure 
that Fiscal Recovery Funds are not used to ``indirectly'' offset 
revenue reductions due to covered changes.
    In order to help ensure recipient governments use Fiscal Recovery 
Funds in a manner consistent with the prescribed eligible uses and do 
not use Fiscal Recovery Funds to indirectly offset a reduction in net 
tax revenue resulting from a covered change, Treasury will monitor 
changes in spending throughout the covered period. If, over the course 
of the covered period, a spending cut is subsequently replaced with 
Fiscal Recovery Funds and used to indirectly offset a reduction in net 
tax revenue resulting from a covered change, Treasury may consider such 
change to be an evasion of the restrictions of the offset provision and 
seek recoupment of such amounts.
    (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 Fiscal Recovery Funds to offset a reduction 
in net tax revenue, up to the amount that revenue has actually 
declined. That is, the maximum value of reduction in revenue due to 
covered changes which a recipient government must cover is capped at 
the difference between the baseline and actual tax revenue.\169\ In the 
event that the baseline is above actual tax revenue and 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. For example, if a 
recipient government reduces tax revenue by $1 billion, makes no other 
changes, and experiences revenue growth driven by organic economic 
growth worth $500 million, it need only pay for the remaining $500 
million with sources other than Fiscal Recovery Funds. The revenue 
reduction cap implements this approach for permitting organic revenue 
growth to cover the cost of tax cuts.
---------------------------------------------------------------------------

    \169\ This cap is applied in Sec.  35.8(c) of the interim final 
rule, calculating the amount of funds used in violation of the tax 
offset provision.
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    Finally, as discussed further in Section IV of this SUPPLEMENTARY 
INFORMATION, a recipient government may request reconsideration of any 
amounts identified as subject to recoupment under this framework. This 
process ensures that all relevant facts and circumstances, including 
information regarding planned spending cuts and budgeting assumptions, 
are considered prior to a determination that an amount must be repaid. 
Amounts subject to recoupment are calculated on an annual basis; 
amounts recouped in one year cannot be returned if the State or 
territory subsequently reports an increase in net tax revenue.
    To facilitate the implementation of the framework above, and in 
addition to reporting required on eligible uses, in each year of the 
reporting period, each State and territory will report to Treasury the 
following items:
     Actual net tax revenue for the reporting year;
     Each revenue-reducing change made to date during the 
covered period and the in-year value of each change;
     Each revenue-raising change made to date during the 
covered period and the in-year value of each change;
     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;
    Treasury will provide additional guidance and instructions the 
reporting requirements at a later date.
    Question 28: Does the interim final rule's definition of tax 
revenue accord with existing State and territorial practice and, if 
not, are there other definitions or elements Treasury should consider? 
Discuss why or why not.
    Question 29: The interim final rule permits certain spending cuts 
to cover the costs of reductions in tax revenue, including cuts in a 
department, agency, or authority in which the recipient government is 
not using Fiscal Recovery Funds. How should Treasury and recipient 
governments consider the scope of a department, agency, or authority 
for the use of funds to ensure spending cuts are not being substituted 
with Fiscal Recovery Funds while also avoiding an overbroad definition 
of that captures spending that is, in fact, distinct?
    Question 30: Discuss the budget scoring methodologies currently 
used by States and territories. How should the interim final rule take 
into consideration differences in approaches? Please discuss the use of

[[Page 26811]]

practices including but not limited to macrodynamic scoring, 
microdynamic scoring, and length of budget windows.
    Question 31: If a recipient government has a balanced budget 
requirement, how will that requirement impact its use of Fiscal 
Recovery Funds and ability to implement this framework?
    Question 32: To implement the framework described above, the 
interim final rule establishes certain reporting requirements. To what 
extent do recipient governments already produce this information and on 
what timeline? Discuss ways that Treasury and recipient governments may 
better rely on information already produced, while ensuring a 
consistent application of the framework.
    Question 33: Discuss States' and territories' ability to produce 
the figures and numbers required for reporting under the interim final 
rule. What additional reporting tools, such as a standardized template, 
would facilitate States' and territories' ability to complete the 
reporting required under the interim final rule?

C. Other Restrictions on Use

    Payments from the Fiscal Recovery Funds are also subject to pre-
existing limitations provided in other Federal statutes and regulations 
and may not be used as non-Federal match for other Federal programs 
whose statute or regulations bar the use of Federal funds to meet 
matching requirements. For example, payments from the Fiscal Recovery 
Funds may not be used to satisfy the State share of Medicaid.\170\
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    \170\ See 42 CFR 433.51 and 45 CFR 75.306.
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    As provided for in the award terms, payments from the Fiscal 
Recovery Funds as a general matter will be subject to the provisions of 
the Uniform Administrative Requirements, Cost Principles, and Audit 
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.

D. Timeline for Use of Fiscal Recovery Funds

    Section 602(c)(1) and section 603(c)(1) require that payments from 
the Fiscal Recovery Funds be used only to cover costs incurred by the 
State, territory, Tribal government, or local government by December 
31, 2024. Similarly, the CARES Act provided that payments from the CRF 
be used to cover costs incurred by December 31, 2021.\171\ The 
definition of ``incurred'' does not have a clear meaning. With respect 
to the CARES Act, on the understanding that the CRF was intended to be 
used to meet relatively short-term needs, Treasury interpreted this 
requirement to mean that, for a cost to be considered to have been 
incurred, performance of the service or delivery of the goods acquired 
must occur by December 31, 2021. In contrast, the ARPA, passed at a 
different stage of the COVID-19 public health emergency, was intended 
to provide more general fiscal relief over a broader timeline. In 
addition, the ARPA expressly permits the use of Fiscal Recovery Funds 
for improvements to water, sewer, and broadband infrastructure, which 
entail a longer timeframe. In recognition of this, Treasury is 
interpreting the requirement in section 602 and section 603 that costs 
be incurred by December 31, 2024, to require only that recipients have 
obligated the Fiscal Recovery Funds by such date. The interim final 
rule adopts a definition of ``obligation'' that is based on the 
definition used for purposes of the Uniform Guidance, which will allow 
for uniform administration of this requirement and is a definition with 
which most recipients will be familiar.
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    \171\ Section 1001 of Division N of the Consolidated 
Appropriations Act, 2021 amended section 601(d)(3) of the Act by 
extending the end of the covered period for CRF expenditures from 
December 30, 2020 to December 31, 2021.
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    Payments from the Fiscal Recovery Funds are grants provided to 
recipients to mitigate the fiscal effects of the COVID-19 public health 
emergency and to respond to the public health emergency, consistent 
with the eligible uses enumerated in sections 602(c)(1) and 
603(c)(1).\172\ As such, these funds are intended to provide economic 
stimulus in areas still recovering from the economic effects of the 
pandemic. In implementing and interpreting these provisions, including 
what it means to ``respond to'' the COVID-19 public health emergency, 
Treasury takes into consideration pre-pandemic facts and circumstances 
(e.g., average revenue growth prior to the pandemic) as well as impact 
of the pandemic that predate the enactment of the ARPA (e.g., 
replenishing Unemployment Trust balances drawn during the pandemic). 
While assessing the effects of the COVID-19 public health emergency 
necessarily takes into consideration the facts and circumstances that 
predate the ARPA, use of Fiscal Recovery Funds is forward looking.
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    \172\ Sections 602(a), 603(a), 602(c)(1) and 603(c)(1) of the 
Act.
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    As discussed above, recipients are permitted to use payments from 
the Fiscal Recovery Funds to respond to the public health emergency, to 
respond to workers performing essential work by providing premium pay 
or providing grants to eligible employers, and to make necessary 
investments in water, sewer, or broadband infrastructure, which all 
relate to prospective uses. In addition, sections 602(c)(1)(C) and 
603(c)(1)(C) permit recipients to use Fiscal Recovery Funds for the 
provision of government services. This clause provides that the amount 
of funds that may be used for this purpose is measured by reference to 
the reduction in revenue due to the public health emergency relative to 
revenues collected in the most recent full fiscal year, but this 
reference does not relate to the period during which recipients may use 
the funds, which instead refers to prospective uses, consistent with 
the other eligible uses.
    Although as discussed above the eligible uses of payments from the 
Fiscal Recovery Funds are all prospective in nature, Treasury considers 
the beginning of the covered period for purposes of determining 
compliance with section 602(c)(2)(A) to be the relevant reference point 
for this purpose. The interim final rule thus permits funds to be used 
to cover costs incurred beginning on March 3, 2021. This aligns the 
period for use of Fiscal Recovery Funds with the period during which 
these funds may not be used to offset reductions in net tax revenue. 
Permitting Fiscal Recovery Funds to be used to cover costs incurred 
beginning on this date will also mean that recipients that began 
incurring costs in the anticipation of enactment of the ARPA and in 
advance of the issuance of this rule and receipt of payment from the 
Fiscal Recovery Funds would be able to cover them using these 
payments.\173\
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    \173\ Given the nature of this program, recipients will not be 
permitted to use funds to cover pre-award costs, i.e., those 
incurred prior to March 3, 2021.
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    As set forth in the award terms, the period of performance will run 
until December 31, 2026, which will provide recipients a reasonable 
amount of time to complete projects funded with payments from the 
Fiscal Recovery Funds.

IV. Recoupment Process

    Under the ARPA, failure to comply with the restrictions on use 
contained in sections 602(c) and 603(c) of the Act may result in 
recoupment of funds.\174\ The interim final rule implements these 
provisions by establishing a process for recoupment.
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    \174\ Sections 602(e) and 603(e) of the Act.
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    Identification and Notice of Violations. Failure to comply with the 
restrictions on use will be identified based on reporting provided by 
the

[[Page 26812]]

recipient. As discussed further in Sections III.B and VIII of this 
SUPPLEMENTARY INFORMATION, Treasury will collect information regarding 
eligible uses on a quarterly basis and on the tax offset provision on 
an annual basis. Treasury also may consider other information in 
identifying a violation, such as information provided by members of the 
public. If Treasury identifies a violation, it will provide written 
notice to the recipient along with an explanation of such amounts.
    Request for Reconsideration. Under the interim final rule, a 
recipient may submit a request for reconsideration of any amounts 
identified in the notice provided by Treasury. This reconsideration 
process provides a recipient the opportunity to submit additional 
information it believes supports its request in light of the notice of 
recoupment, including, for example, additional information regarding 
the recipient's use of Fiscal Recovery Funds or its tax revenues. The 
process also provides the Secretary with an opportunity to consider all 
information relevant to whether a violation has occurred, and if so, 
the appropriate amount for recoupment.
    The interim final rule also establishes requirements for the timing 
of a request for reconsideration. Specifically, if a recipient wishes 
to request reconsideration of any amounts identified in the notice, the 
recipient must submit a written request for reconsideration to the 
Secretary within 60 calendar days of receipt of such notice. The 
request must include an explanation of why the recipient believes that 
the finding of a violation or recoupable amount identified in the 
notice of recoupment should be reconsidered. To facilitate the 
Secretary's review of a recipient's request for reconsideration, the 
request should identify all supporting reasons for the request. Within 
60 calendar days of receipt of the recipient's request for 
reconsideration, 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.
    The process and timeline established by the interim final rule are 
intended to provide the recipient with an adequate opportunity to fully 
present any issues or arguments in response to the notice of 
recoupment.\175\ This process will allow the Secretary to respond to 
the issues and considerations raised in the request for reconsideration 
taking into account the information and arguments presented by the 
recipient along with any other relevant information.
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    \175\ The interim final rule also provides that Treasury may 
extend any deadlines.
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    Repayment. Finally, the interim final rule provides that any 
amounts subject to recoupment must be repaid within 120 calendar days 
of receipt of any final notice of recoupment or, if the recipient has 
not requested reconsideration, within 120 calendar days of the initial 
notice provided by the Secretary.
    Question 34: Discuss the timeline for requesting reconsideration 
under the interim final rule. What, if any, challenges does this 
timeline present?

V. Payments in Tranches to Local Governments and Certain States

    Section 603 of the Act provides that the Secretary will make 
payments to local governments in two tranches, with the second tranche 
being paid twelve months after the first payment. In addition, section 
602(b)(6)(A)(ii) provides that the Secretary may withhold payment of up 
to 50 percent of the amount allocated to each State and territory for a 
period of up to twelve months from the date on which the State or 
territory provides its certification to the Secretary. Any such 
withholding for a State or territory is required to be based on the 
unemployment rate in the State or territory as of the date of the 
certification.
    The Secretary has determined to provide in this interim final rule 
for withholding of 50 percent of the amount of Fiscal Recovery Funds 
allocated to all States (and the District of Columbia) other than those 
with an unemployment rate that is 2.0 percentage points or more above 
its pre-pandemic (i.e., February 2020) level. The Secretary will refer 
to the latest available monthly data from the Bureau of Labor 
Statistics as of the date the certification is provided. Based on data 
available at the time of public release of this interim final rule, 
this threshold would result in a majority of States being paid in two 
tranches.
    Splitting payments for the majority of States is consistent with 
the requirement in section 603 of the Act to make payments from the 
Coronavirus Local Fiscal Recovery Fund to local governments in two 
tranches.\176\ Splitting payments to States into two tranches will help 
encourage recipients to adapt, as necessary, to new developments that 
could arise over the coming twelve months, including potential changes 
to the nature of the public health emergency and its negative economic 
impacts. While the U.S. economy has been recovering and adding jobs in 
aggregate, there is still considerable uncertainty in the economic 
outlook and the interaction between the pandemic and the economy.\177\ 
For these reasons, Treasury believes it will be appropriate for a 
majority of recipients to adapt their plans as the recovery evolves. 
For example, a faster-than-expected economic recovery in 2021 could 
lead a recipient to dedicate more Fiscal Recovery Funds to longer-term 
investments starting in 2022. In contrast, a slower-than-expected 
economic recovery in 2021 could lead a recipient to use additional 
funds for near-term stimulus in 2022.
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    \176\ With respect to Federal financial assistance more 
generally, States are subject to the requirements of the Cash 
Management Improvement Act (CMIA), under which Federal funds are 
drawn upon only on an as needed basis and States are required to 
remit interest on unused balances to Treasury. Given the statutory 
requirement for Treasury to make payments to States within a certain 
period, these requirements of the CMIA and Treasury's implementing 
regulations at 31 CFR part 205 will not apply to payments from the 
Fiscal Recovery Funds. Providing funding in two tranches to the 
majority of States reflects, to the maximum extent permitted by 
section 602 of the Act, the general principles of Federal cash 
management and stewardship of Federal funding, yet will be much less 
restrictive than the usual requirements to which States are subject.
    \177\ The potential course of the virus, and its impact on the 
economy, has contributed to a heightened degree of uncertainty 
relative to prior periods. See, e.g., Dave Altig et al., Economic 
uncertainty before and during the COVID-19 pandemic, J. of Public 
Econ. (Nov. 2020), available at https://www.sciencedirect.com/science/article/abs/pii/S0047272720301389.
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    At the same time, the statute contemplates the possibility that 
elevated unemployment in certain States could justify a single payment. 
Elevated unemployment is indicative of a greater need to assist 
unemployed workers and stimulate a faster economic recovery. For this 
reason, the interim final rule provides that States and territories 
with an increase in their unemployment rate over a specified threshold 
may receive a single payment, with the expectation that a single 
tranche will better enable these States and territories to take 
additional immediate action to aid the unemployed and strengthen their 
economies.
    Following the initial pandemic-related spike in unemployment in 
2020, States' unemployment rates have been trending back towards pre-
pandemic levels. However, some States' labor markets are healing more 
slowly than others. Moreover, States varied widely in their pre-
pandemic levels of unemployment, and some States remain substantially 
further from their pre-

[[Page 26813]]

pandemic starting point. Consequently, Treasury is delineating States 
with significant remaining elevation in the unemployment rate, based on 
the net difference to pre-pandemic levels.
    Treasury has established that significant remaining elevation in 
the unemployment rate is a net change in the unemployment rate of 2.0 
percentage points or more relative to pre-pandemic levels. In the four 
previous recessions going back to the early 1980s, the national 
unemployment rate rose by 3.6, 2.3, 2.0, and 5.0 percentage points, as 
measured from the start of the recession to the eventual peak during or 
immediately following the recession.\178\ Each of these increases can 
therefore represent a recession's impact on unemployment. To identify 
States with significant remaining elevation in unemployment, Treasury 
took the lowest of these four increases, 2.0 percentage points, to 
indicate states where, despite improvement in the unemployment rate, 
current labor market conditions are consistent still with a historical 
benchmark for a recession.
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    \178\ Includes the period during and immediately following 
recessions, as defined by the National Bureau of Economic Research. 
National Bureau of Economic Research, US Business Cycle Expansions 
and Contractions, https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions (last visited Apr. 27, 2021). 
Based on data from 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 Apr. 
27, 2021).
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    No U.S. territory will be subject to withholding of its payment 
from the Fiscal Recovery Funds. For Puerto Rico, the Secretary has 
determined that the current level of the unemployment rate (8.8 
percent, as of March 2021 \179\) is sufficiently high such that 
Treasury should not withhold any portion of its payment from the Fiscal 
Recovery Funds regardless of its change in unemployment rate relative 
to its pre-pandemic level. For U.S. territories that are not included 
in the Bureau of Labor Statistics' monthly unemployment rate data, the 
Secretary will not exercise the authority to withhold amounts from the 
Fiscal Recovery Funds.
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    \179\ U.S. Bureau of Labor Statistics, Economic News Release--
Table 1. Civilian labor force and unemployment by state and selected 
area, seasonally adjusted, https://www.bls.gov/news.release/laus.t01.htm (last visited Apr. 30, 2021).
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VI. Transfer

    The statute authorizes State, territorial, and Tribal governments; 
counties; metropolitan cities; and nonentitlement units of local 
government (counties, metropolitan cities, and nonentitlement units of 
local government are collectively referred to as ``local governments'') 
to transfer amounts paid from the Fiscal Recovery Funds to a number of 
specified entities. By permitting these transfers, Congress recognized 
the importance of providing flexibility to governments seeking to 
achieve the greatest impact with their funds, including by working with 
other levels or units of government or private entities to assist 
recipient governments in carrying out their programs. This includes 
special-purpose districts that perform specific functions in the 
community, such as fire, water, sewer, or mosquito abatement districts.
    Specifically, under section 602(c)(3), a State, territory, or 
Tribal government may transfer 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.'' \180\ Similarly, 
section 603(c)(3) authorizes a local government to transfer funds to 
the same entities (other than Tribal organizations).
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    \180\ Section 602(c)(3) of the Act.
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    The interim final rule clarifies that the lists of transferees in 
sections 602(c)(3) and 603(c)(3) are not exclusive. The interim final 
rule permits State, territorial, and Tribal governments to transfer 
Fiscal Recovery Funds to other constituent units of government or 
private entities beyond those specified in the statute. Similarly, 
local governments are authorized to transfer Fiscal Recovery Funds to 
other constituent units of government (e.g., a county is able to 
transfer Fiscal Recovery Funds to a city, town, or school district 
within it) or to private entities. This approach is intended to help 
provide funding to local governments with needs that may exceed the 
allocation provided under the statutory formula.
    State, local, territorial, and Tribal governments that receive a 
Federal award directly from a Federal awarding agency, such as 
Treasury, are ``recipients.'' 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. The recipient remains 
responsible for monitoring and overseeing the subrecipient's use of 
Fiscal Recovery 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 Fiscal Recovery Funds for the duration of the 
award.
    Transfers under sections 602(c)(3) and 603(c)(3) must qualify as an 
eligible use of Fiscal Recovery Funds by the transferor. Once Fiscal 
Recovery Funds are received, the transferee must abide by the 
restrictions on use applicable to the transferor under the ARPA and 
other applicable law and program guidance. For example, if a county 
transferred Fiscal Recovery Funds to a town within its borders to 
respond to the COVID-19 public health emergency, the town would be 
bound by the eligible use requirements applicable to the county in 
carrying out the county's goal. This also means that county A may not 
transfer Fiscal Recovery Funds to county B for use in county B because 
such a transfer would not, from the perspective of the transferor 
(county A), be an eligible use in county A.
    Section 603(c)(4) separately provides for transfers by a local 
government to its State or territory. A transfer under section 
603(c)(4) will not make the State a subrecipient of the local 
government, and such Fiscal Recovery Funds may be used by the State for 
any purpose permitted under section 602(c). A transfer 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 or territory. The transferor must provide 
notice of the transfer to Treasury in a format specified by Treasury. 
If the local government does not provide such notice, it will remain 
legally obligated to Treasury under the award and remain responsible 
for ensuring that the awarded Fiscal Recovery Funds are being used in 
accordance with the statute and program guidance and for reporting on 
such uses to Treasury. A State that receives a transfer from a local 
government under section 603(c)(4) will be bound by all of the use 
restrictions set forth in section 602(c) with respect to the use of 
those Fiscal Recovery Funds, including the prohibitions on use of such 
Fiscal Recovery Funds to offset certain reductions in taxes or to make 
deposits into pension funds.
    Question 35: What are the advantages and disadvantages of treating 
the list of transferees in sections 602(c)(3) and 603(c)(3) as 
nonexclusive, allowing States and localities to transfer funds to 
entities outside of the list?
    Question 36: Are there alternative ways of defining ``special-
purpose unit of State or local government'' and

[[Page 26814]]

``public benefit corporation'' that would better further the aims of 
the Funds?

VII. Nonentitlement Units of Government

    The Fiscal Recovery Funds provides for $19.53 billion in payments 
to be made to States and territories which will distribute the funds to 
nonentitlement units of local government (NEUs); local governments 
which generally have populations below 50,000. These local governments 
have not yet received direct fiscal relief from the Federal Government 
during the COVID-19 public health emergency, making Fiscal Recovery 
Funds payments an important source of support for their public health 
and economic responses. Section 603 requires Treasury to allocate and 
pay Fiscal Recovery Funds to the States and territories and requires 
the States and territories to distribute Fiscal Recovery Funds to NEUs 
based on population within 30 days of receipt unless an extension is 
granted by the Secretary. The interim final rule clarifies certain 
aspects regarding the distribution of Fiscal Recovery by States and 
territories to NEUs, as well as requirements around timely payments 
from the Fiscal Recovery Funds.
    The ARPA requires that States and territories allocate funding to 
NEUs in an amount that bears the same proportion as the population of 
the NEU bears to the total population of all NEUs in the State or 
territory, subject to a cap (described below). Because the statute 
requires States and territories to make distributions based on 
population, States and territories may not place additional conditions 
or requirements on distributions to NEUs, beyond those required by the 
ARPA and Treasury's implementing regulations and guidance. For example, 
a State may not impose stricter limitations than permitted by statute 
or Treasury regulations or guidance on an NEU's use of Fiscal Recovery 
Funds based on the NEU's proposed spending plan or other policies. 
States and territories are also not permitted to offset any debt owed 
by the NEU against the NEU's distribution. Further, States and 
territories may not provide funding on a reimbursement basis--e.g., 
requiring NEUs to pay for project costs up front before being 
reimbursed with Fiscal Recovery Funds payments--because this funding 
model would not comport with the statutory requirement that States and 
territories make distributions to NEUs within the statutory timeframe.
    Similarly, States and territories distributing Fiscal Recovery 
Funds payments to NEUs are responsible for complying with the Fiscal 
Recovery Funds statutory requirement that distributions to NEUs not 
exceed 75 percent of the NEU's most recent budget. The most recent 
budget is defined as the NEU's most recent annual total operating 
budget, including its general fund and other funds, as of January 27, 
2020. Amounts in excess of such cap and therefore not distributed to 
the NEU must be returned to Treasury by the State or territory. States 
and territories may rely for this determination on a certified top-line 
budget total from the NEU.
    Under the interim final rule, the total allocation and distribution 
to an NEU, including the sum of both the first and second tranches of 
funding, cannot exceed the 75 percent cap. 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 cap. This approach will provide an 
administrable means to implement the cap for small local governments 
that do not adopt a formal budget.
    Section 603(b)(3) of the Social Security Act provides for Treasury 
to make payments to counties but provides that, in the case of an 
amount to be paid to a county that is not a unit of general local 
government, the amount shall instead be paid to the State in which such 
county is located, and such State shall distribute such amount to each 
unit of general local government within such county in an amount that 
bears the same proportion to the amount to be paid to such county as 
the population of such units of general local government bears to the 
total population of such county. As with NEUs, States may not place 
additional conditions or requirements on distributions to such units of 
general local government, beyond those required by the ARPA and 
Treasury's implementing regulations and guidance.
    In the case of consolidated governments, section 603(b)(4) allows 
consolidated governments (e.g., a city-county consolidated government) 
to receive payments under each allocation based on the respective 
formulas. In the case of a consolidated government, Treasury interprets 
the budget cap to apply to the consolidated government's NEU allocation 
under section 603(b)(2) but not to the consolidated government's county 
allocation under section 603(b)(3).
    If necessary, States and territories may use the Fiscal Recovery 
Funds under section 602(c)(1)(A) to fund expenses related to 
administering payments to NEUs and units of general local government, 
as disbursing these funds itself is a response to the public health 
emergency and its negative economic impacts. If a State or territory 
requires more time to disburse Fiscal Recovery Funds to NEUs than the 
allotted 30 days, Treasury will grant extensions of not more than 30 
days for States and territories that submit a certification in writing 
in accordance with section 603(b)(2)(C)(ii)(I). Additional extensions 
may be granted at the discretion of the Secretary.
    Question 37: What are alternative ways for States and territories 
to enforce the 75 percent cap while reducing the administrative burden 
on them?
    Question 38: What criteria should Treasury consider in assessing 
requests for extensions for further time to distribute NEU payments?

VIII. Reporting

    States (defined to include the District of Columbia), territories, 
metropolitan cities, counties, and Tribal governments will be required 
to submit one interim report and thereafter quarterly Project and 
Expenditure reports through the end of the award period on December 31, 
2026. The interim report will include a recipient's expenditures by 
category at the summary level from the date of award to July 31, 2021 
and, for States and territories, information related to distributions 
to nonentitlement units. Recipients must submit their interim report to 
Treasury by August 31, 2021. Nonentitlement units of local government 
are not required to submit an interim report.
    The quarterly Project and Expenditure reports will include 
financial data, information on contracts and subawards over $50,000, 
types of projects funded, and other information regarding a recipient's 
utilization of the award funds. The reports will include the same 
general data (e.g., on obligations, expenditures, contracts, grants, 
and sub-awards) as those submitted by recipients of the CRF, with some 
modifications. Modifications will include updates to the expenditure 
categories and the addition of data elements related to specific 
eligible uses, including some of the reporting elements described in 
sections above. The initial quarterly Project and Expenditure report 
will cover two calendar quarters from the date of award to September 
30, 2021, and must be submitted to Treasury by October 31, 2021. The 
subsequent quarterly reports will cover one calendar quarter and must 
be submitted to Treasury within 30 days after the end of each calendar 
quarter.
    Nonentitlement units of local government will be required to submit

[[Page 26815]]

annual Project and Expenditure reports until the end of the award 
period on December 31, 2026. The initial annual Project and Expenditure 
report for nonentitlement units of local government will cover activity 
from the date of award to September 30, 2021 and must be submitted to 
Treasury by October 31, 2021. The subsequent annual reports must be 
submitted to Treasury by October 31 each year.
    States, territories, metropolitan cities, and counties with a 
population that exceeds 250,000 residents will also be required to 
submit an annual Recovery Plan Performance report to Treasury. The 
Recovery Plan Performance report will provide the public and Treasury 
information on the projects that recipients are undertaking with 
program funding and how they are planning to ensure project outcomes 
are achieved in an effective, efficient, and equitable manner. Each 
jurisdiction will have some flexibility in terms of the form and 
content of the Recovery Plan Performance report, as long as it includes 
the minimum information required by Treasury. The Recovery Plan 
Performance report will include key performance indicators identified 
by the recipient and some mandatory indicators identified by Treasury, 
as well as programmatic data in specific eligible use categories and 
the specific reporting requirements described in the sections above. 
The initial Recovery Plan Performance report will cover the period from 
the date of award to July 31, 2021 and must be submitted to Treasury by 
August 31, 2021. Thereafter, Recovery Plan Performance reports will 
cover a 12-month period, and recipients will be required to submit the 
report to Treasury within 30 days after the end of the 12-month period. 
The second Recovery Plan Performance report will cover the period from 
July 1, 2021 to June 30, 2022, and must be submitted to Treasury by 
July 31, 2022. Each annual Recovery Plan Performance report must be 
posted on the public-facing website of the recipient. Local governments 
with fewer than 250,000 residents, Tribal governments, and 
nonentitlement units of local government are not required to develop a 
Recovery Plan Performance report.
    Treasury will provide additional guidance and instructions on the 
reporting requirements outlined above for the Fiscal Recovery Funds at 
a later date.

IX. Comments and Effective Date

    This interim final rule is being issued without advance notice and 
public comment to allow for immediate implementation of this program. 
As discussed below, the requirements of advance notice and public 
comment do not apply ``to the extent that there is involved . . . a 
matter relating to agency . . . grants.'' \181\ The interim final rule 
implements statutory conditions on the eligible uses of the Fiscal 
Recovery Funds grants, and addresses the payment of those funds, the 
reporting on uses of funds, and potential consequences of ineligible 
uses. In addition and as discussed below, the Administrative Procedure 
Act 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.'' \182\ This good 
cause justification also supports waiver of the 60-day delayed 
effective date for major rules under the Congressional Review Act at 5 
U.S.C. 808(2). Although this interim final rule is effective 
immediately, comments are solicited from interested members of the 
public and from recipient governments on all aspects of the interim 
final rule.
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    \181\ 5 U.S.C. 553(a)(2).
    \182\ 5 U.S.C. 553(b)(3)(B); see also 5 U.S.C. 553(d)(3) 
(creating an exception to the requirement of a 30-day delay before 
the effective date of a rule ``for good cause found and published 
with the rule'').
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    These comments must be submitted on or before July 16, 2021.

X. Regulatory Analyses

Executive Orders 12866 and 13563

    This interim final rule is economically significant for the 
purposes of Executive Orders 12866 and 13563. Treasury, however, is 
proceeding under the emergency provision at Executive Order 12866 
section 6(a)(3)(D) based on the need to act expeditiously to mitigate 
the current economic conditions arising from the COVID-19 public health 
emergency. The rule has been reviewed by the Office of Management and 
Budget (OMB) in accordance with Executive Order 12866. This rule is 
necessary to implement the ARPA in order to provide economic relief to 
State, local, and Tribal governments adversely impacted by the COVID-19 
public health emergency.
    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:
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy; productivity; competition; 
jobs; the environment; public health or safety; or State, local, or 
Tribal governments or communities in a material way (also referred to 
as ``economically significant'' regulations);
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.

This regulatory action is an economically significant regulatory action 
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

[[Page 26816]]

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.''
    Treasury has assessed the potential costs and benefits, both 
quantitative and qualitative, of this regulatory action, and is issuing 
this interim 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. Based on the analysis that follows and the reasons stated 
elsewhere in this document, Treasury believes that this interim final 
rule is consistent with the principles set forth in Executive Order 
13563.
    Treasury also has determined that this regulatory action does not 
unduly interfere with States, territories, Tribal governments, and 
localities in the exercise of their governmental functions.
    This Regulatory Impact Analysis discusses the need for regulatory 
action, the potential benefits, and the potential costs.
    Need for Regulatory Action. This interim final rule implements the 
$350 billion Fiscal Recovery Funds 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 interim final rule is needed to ensure 
that recipients of Fiscal Recovery 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' mandate for 
targeted fiscal relief.
    This interim final rule is primarily a transfer rule: It transfers 
$350 billion in aid from the Federal Government to states, territories, 
Tribal governments, and localities, generating a significant 
macroeconomic effect on the U.S. economy. In making this transfer, 
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 
Fiscal Recovery 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.\183\ 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 2007-09 
recession.\184\
---------------------------------------------------------------------------

    \183\ Gabriel Chodorow-Reich et al., Does State Fiscal Relief 
during Recessions Increase Employment? Evidence from the American 
Recovery and Reinvestment Act, American Econ. J.: Econ. Policy, 4:3 
118-45 (Aug. 2012), available at https://www.aeaweb.org/articles?id=10.1257/pol.4.3.118.
    \184\ See, e.g., Fitzpatrick, Haughwout & Setren, Fiscal Drag 
from the State and Local Sector?, Liberty Street Economics Blog, 
Federal Reserve Bank of New York (June 27, 2012), https://www.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 9.
---------------------------------------------------------------------------

    This interim final rule provides benefits across several areas by 
implementing the four eligible funding uses, as defined in statute: 
Strengthening the response to the COVID-19 public health emergency and 
its economic impacts; easing 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 certain types of 
infrastructure. In implementing the ARPA, Treasury also sought to 
support disadvantaged communities that have been disproportionately 
impacted by the pandemic. The Fiscal Recovery Funds as implemented by 
the interim final rule can be expected to channel resources toward 
these uses in order to achieve substantial near-term economic and 
public health benefits, as well as longer-term benefits arising from 
the allowable investments in water, sewer, and broadband infrastructure 
and aid to families.
    These benefits are achieved in the interim final rule through a 
broadly flexible approach that sets clear guidelines on eligible uses 
of Fiscal Recovery Funds and provides State, local, and Tribal 
government officials discretion within those eligible uses to direct 
Fiscal Recovery Funds to areas of greatest need within their 
jurisdiction. While preserving recipients' overall flexibility, the 
interim final rule includes several provisions that implement statutory 
requirements and will help support use of Fiscal Recovery Funds to 
achieve the intended benefits. The remainder of this section clarifies 
how Treasury's approach to key provisions in the interim final rule 
will contribute to greater realization of benefits from the program.
     Revenue Loss: Recipients will 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'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. Moreover, recipients will have the opportunity to re-
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 
should 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, Treasury's approach provides a more accurate 
representation of the effect of the pandemic on overall revenues.
     Premium Pay: Per the statute, recipients have broad 
latitude to designate critical infrastructure sectors and make grants 
to third-party employers for the purpose of providing premium pay or 
otherwise respond to essential workers. While the interim final rule 
generally preserves the flexibility in the statute, it does add a 
requirement that recipients give written justification in the case that 
premium pay would increase a worker's annual pay above a certain 
threshold. To set this threshold, Treasury analyzed data

[[Page 26817]]

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. Treasury believes the threshold in the interim 
final rule strikes the appropriate balance between preserving 
flexibility and helping encourage use of these resources to help those 
in greatest need. The interim final rule also requires that eligible 
workers have regular in-person interactions or regular physical 
handling of items that were also handled by others. This requirement 
will also help encourage use of financial resources for those who have 
endured the heightened risk of performing essential work.
     Withholding of Payments to Recipients: Treasury believes 
that for the vast majority of recipient entities, it will be 
appropriate to receive funds in two separate payments. As discussed 
above, withholding of 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 will not 
withhold any funds from the first payment. Treasury believes that this 
approach strikes the 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.
     Hiring Public Sector Employees: The interim final rule 
states explicitly that recipients may use funds to restore their 
workforces up to pre-pandemic levels. Treasury believes that this 
statement is beneficial because it eliminates any uncertainty that 
could cause delays or otherwise negatively impact restoring public 
sector workforces (which, at time of publication, remain significantly 
below pre-pandemic levels).
    Finally, the interim final rule aims to promote and streamline the 
provision of assistance to individuals and communities in greatest 
need, particularly communities that have been historically 
disadvantaged 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.'' \185\ To this end, the interim final rule enumerates a 
list of services that may be provided using Fiscal Recovery Funds in 
low-income areas to address the disproportionate 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 
Fiscal Recovery Funds to restore (to pre-pandemic levels) state and 
local workforces, where women and people of color are 
disproportionately represented; \186\ and targets investments in 
broadband infrastructure to unserved and underserved areas. 
Collectively, these provisions will promote use of resources to 
facilitate the provision of assistance to individuals and communities 
with the greatest need.
---------------------------------------------------------------------------

    \185\ Executive Order on Advancing Racial Equity and Support for 
Underserved Communities through the Federal Government (Jan. 20, 
2021) (86 FR 7009, January 25, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government/ (last visited May 9, 2021).
    \186\ David Cooper, Mary Gable & Algernon Austin, Economic 
Policy Institute Briefing Paper, The Public-Sector Jobs Crisis: 
Women and African Americans hit hardest by job losses in state and 
local governments, https://www.epi.org/publication/bp339-public-sector-jobs-crisis (last visited May 9, 2021).
---------------------------------------------------------------------------

    Analysis of Costs. This regulatory action will generate 
administrative costs relative to a pre-statutory baseline. This 
includes, chiefly, costs required to administer Fiscal Recovery Funds, 
oversee subrecipients and beneficiaries, and file periodic reports with 
Treasury. It also requires States to allocate Fiscal Recovery 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 most 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 CRF and Treasury expects 
them to rely heavily on established processes developed last year or 
through prior grant funding, mitigating burden on these governments.
    Treasury expects to provide technical assistance to defray the 
costs of administration of Fiscal Recovery Funds to further mitigate 
burden. In making implementation choices, Treasury has hosted numerous 
consultations with a diverse range of direct recipients--States, small 
cities, counties, and Tribal governments--along with various 
communities across the United States, including those that are 
underserved. Treasury lacks data to estimate the precise extent to 
which this interim final rule generates administrative burden for 
State, local, and Tribal governments, but seeks comment to better 
estimate and account for these costs, as well as on ways to lessen 
administrative burdens.

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 interim 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. 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

[[Page 26818]]

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 interim final rule 
implements statutory conditions on the eligible uses of the Fiscal 
Recovery Funds grants, and addresses the payment of those funds, the 
reporting on uses of funds, and potential consequences of ineligible 
uses. The rule is thus ``both clearly and directly related to a federal 
grant program.'' National Wildlife Federation v. Snow, 561 F.2d 227, 
232 (D.C. Cir. 1976). The rule sets forth the ``process necessary to 
maintain state . . . eligibility for federal funds,'' id., as well as 
the ``method[s] by which states can . . . qualify for federal aid,'' 
and other ``integral part[s] of the grant program,'' Center for Auto 
Safety v. Tiemann, 414 F. Supp. 215, 222 (D.D.C. 1976). As a result, 
the requirements of 5 U.S.C. 553 do not apply.
    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)(3)(B); see also 5 U.S.C. 553(d)(3) (creating an exception to the 
requirement of a 30-day delay before the effective date of a rule ``for 
good cause found and published with the rule''). Assuming 5 U.S.C. 553 
applied, Treasury would still have good cause under sections 
553(b)(3)(B) and 553(d)(3) for not undertaking section 553's 
requirements. The ARPA is a law responding to a historic economic and 
public health emergency; it is ``extraordinary'' legislation about 
which ``both Congress and the President articulated a profound sense of 
`urgency.''' Petry v. Block, 737 F.2d 1193, 1200 (D.C. Cir. 1984). 
Indeed, several provisions implemented by this interim final rule 
(sections 602(c)(1)(A) and 603(c)(1)(A)) explicitly provide funds to 
``respond to the public health emergency,'' and the urgency is further 
exemplified by Congress's command (in sections 602(b)(6)(B) and 
603(b)(7)(A)) that, ``[t]o the extent practicable,'' funds must be 
provided to Tribes and cities ``not later than 60 days after the date 
of enactment.'' See Philadelphia Citizens in Action v. Schweiker, 669 
F.2d 877, 884 (3d Cir. 1982) (finding good cause under circumstances, 
including statutory time limits, where APA procedures would have been 
``virtually impossible''). Finally, there is an urgent need for States 
to undertake the planning necessary for sound fiscal policymaking, 
which requires an understanding of how funds provided under the ARPA 
will augment and interact with existing budgetary resources and tax 
policies. Treasury understands that many states require immediate rules 
on which they can rely, especially in light of the fact that the ARPA 
``covered period'' began on March 3, 2021. The statutory urgency and 
practical necessity are good cause to forego the ordinary requirements 
of notice-and-comment rulemaking.

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 takes 
effect 60 days after the rule is published in the Federal Register. 5 
U.S.C. 801(a)(3). Notwithstanding this requirement, the CRA allows 
agencies to dispense with the requirements of section 801 when the 
agency for good cause finds that such procedure would be impracticable, 
unnecessary, or contrary to the public interest and the rule shall take 
effect at such time as the agency promulgating the rule determines. 5 
U.S.C. 808(2). Pursuant to section 808(2), for the reasons discussed 
above, Treasury for good cause finds that a 60-day delay to provide 
public notice is impracticable and contrary to the public interest.

Paperwork Reduction Act

    The information collections associated with State, territory, 
local, and Tribal government applications materials necessary to 
receive Fiscal Recovery Funds (e.g., payment information collection and 
acceptance of award terms) have been reviewed and approved by OMB 
pursuant to the Paperwork Reduction Act (44 U.S.C. chapter 35) (PRA) 
emergency processing procedures and assigned control number 1505-0271. 
The information collections related to ongoing reporting requirements, 
as discussed in this interim final rule, will be submitted to OMB for 
emergency processing in the near future. 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. Burden estimates below are preliminary.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                   Number of         Number of
           Reporting              respondents      responses per     Total responses    Hours per  response     Total burden  in     Cost to respondent
                                  (estimated)       respondent                                                       hours          ($48.80 per 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
Quarterly Project and                    5,050  4***..............             20,200  25...................              505,000             24,644,000
 Expenditure Report.
Annual Project and Expenditure             TBD  1 per year........   [dagger] 20,000-  15...................      300,000-600,000  14,640,000-29,280,000
 Report from NEUs.                                                             40,000
Annual Recovery Plan                       418  1 per year........                418  100..................               41,800              2,039,840
 Performance report.
                               -------------------------------------------------------------------------------------------------------------------------
    Total.....................            (**)  N/A...............      55,768-75,768  141..................    851,850-1,151,850  41,570,280-56,210,280
--------------------------------------------------------------------------------------------------------------------------------------------------------
*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.
**5,050-TBD.
***Per year after first year.
[dagger] (Estimate only).

    Periodic reporting is required by section 602(c) of Section VI of 
the Social Security Act and under the interim final rule.
    As discussed in Section VIII of this SUPPLEMENTARY INFORMATION, 
recipients of Fiscal Recovery Funds will be required to submit one 
interim report and thereafter quarterly Project and Expenditure reports 
until the end of the award period. Recipients must submit interim 
reports to Treasury by August

[[Page 26819]]

31, 2021. The quarterly Project and Expenditure reports will include 
financial data, information on contracts and subawards over $50,000, 
types of projects funded, and other information regarding a recipient's 
utilization of the award funds.
    Nonentitlement unit recipients will be required to submit annual 
Project and Expenditure reports until the end of the award period. The 
initial annual Project and Expenditure report for Nonentitlement unit 
recipients must be submitted to Treasury by October 31, 2021. The 
subsequent annual reports must be submitted to Treasury by October 31 
each year. States, territories, metropolitan cities, and counties with 
a population that exceeds 250,000 residents will also be required to 
submit an annual Recovery Plan Performance report to Treasury. The 
Recovery Plan Performance report will include descriptions of the 
projects funded and information on the performance indicators and 
objectives of the award. Each annual Recovery Plan Performance report 
must be posted on the public-facing website of the recipient. Treasury 
will provide additional guidance and instructions on the all the 
reporting requirements outlined above for the Fiscal Recovery Funds 
program at a later date.
    These and related periodic reporting requirements are under 
consideration and will be submitted to OMB for approval under the PRA 
emergency provisions in the near future.
    Treasury invites comments on all aspects of the reporting and 
recordkeeping requirements including: (a) Whether the collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information has practical utility; 
(b) the accuracy of the estimate of the burden of the collection of 
information; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; (d) ways to minimize the burden of the 
collection of information; and (e) estimates of capital or start-up 
costs and costs of operation, maintenance, and purchase of services to 
provide information. Comments should be sent by the comment deadline to 
the www.regulations.gov docket with a copy to the Office of Information 
and Regulatory Affairs, U.S. Office of Management and Budget, 725 17th 
Street NW, Washington, DC 20503; or email to 
[email protected].

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 are 
also exempt from the RFA 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. Since 
this rule is exempt from the notice and comment requirements of the 
APA, Treasury is not required to conduct a regulatory flexibility 
analysis.

List of Subjects in 31 CFR Part 35

    Executive compensation, Public health emergency, State and local 
governments, Tribal governments.

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

PART 35--PANDEMIC RELIEF PROGRAMS

0
1. The authority citation for part 35 is revised to read as follows:

    Authority: 42 U.S.C. 802(f); 42 U.S.C. 803(f); 31 U.S.C. 321; 
Division N, Title V, Subtitle B, Pub. L. 116-260, 134 Stat. 1182; 
Section 104A, Pub. L. 103-325, 108 Stat. 2160, as amended (12 U.S.C. 
4701 et seq.); Pub. L. 117-2, 135 Stat. 4 (42 U.S.C. 802 et seq.).


0
2. Revise the part heading to read as set forth above.

0
3. Add 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.


Sec.  35.1  Purpose.

    This subpart 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 subpart 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.

    As used in this subpart:
    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.
    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. 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, Territory, or Tribal 
government, the period that:
    (1) Begins on March 3, 2021; and
    (2) Ends on the last day of the fiscal year of such State, 
Territory, or Tribal government in which all funds received by the 
State, Territory, or Tribal government 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 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.).

[[Page 26820]]

    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 child 
care; 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; 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 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 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.
    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, 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 does not include revenues from utilities. Revenue 
from Tribal business enterprises must be included in general revenue.
    Intergovernmental transfers means money received from other 
governments, including grants and shared taxes.
    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.
    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) 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.
    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 with respect to any single eligible worker. 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 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 workers' 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).

[[Page 26821]]

    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.
    Tribal enterprise means a business concern:
    (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 by the Bureau of 
Indian Affairs 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)).
    Unserved and underserved households or businesses means one or more 
households or businesses that are not currently served by a wireline 
connection that reliably delivers at least 25 Mbps download speed and 3 
Mbps of upload speed.


Sec.  35.4  Reservation of authority, reporting.

    (a) Reservation of authority. Nothing in this subpart 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 subpart, 
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 
covered period, recipients shall provide to the Secretary periodic 
reports providing detailed accounting of the uses of funds, all 
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 section 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, and any funds not expended to cover 
such obligations 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 (e) 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, including for one or 
more of the following purposes:
    (1) COVID-19 response and prevention. Expenditures for the 
mitigation and prevention of COVID-19, including:
    (i) Expenses related to COVID-19 vaccination programs and sites, 
including staffing, acquisition of equipment or supplies, facilities 
costs, and information technology or other administrative expenses;
    (ii) COVID-19-related expenses of public hospitals, clinics, and 
similar facilities;
    (iii) COVID-19 related expenses in congregate living facilities, 
including skilled nursing facilities, long-term care facilities, 
incarceration settings, homeless shelters, residential foster care 
facilities, residential behavioral health treatment, and other group 
living facilities;
    (iv) Expenses of establishing temporary public medical facilities 
and other measures to increase COVID-19 treatment capacity, including 
related construction costs and other capital investments in public 
facilities to meet COVID-19-related operational needs;
    (v) Expenses of establishing temporary public medical facilities 
and other measures to increase COVID-19 treatment capacity, including 
related construction costs and other capital investments in public 
facilities to meet COVID-19-related operational needs;
    (vi) Costs of providing COVID-19 testing and monitoring, contact 
tracing, and monitoring of case trends and genomic sequencing for 
variants;
    (vii) Emergency medical response expenses, including emergency 
medical transportation, related to COVID-19;
    (viii) Expenses for establishing and operating public telemedicine 
capabilities for COVID-19-related treatment;
    (ix) Expenses for communication related to COVID-19 vaccination 
programs and communication or enforcement by recipients of public 
health orders related to COVID-19;
    (x) Expenses for acquisition and distribution of medical and 
protective supplies, including sanitizing products and personal 
protective equipment;
    (xi) Expenses for disinfection of public areas and other facilities 
in

[[Page 26822]]

response to the COVID-19 public health emergency;
    (xii) Expenses for technical assistance to local authorities or 
other entities on mitigation of COVID-19-related threats to public 
health and safety;
    (xiii) Expenses for quarantining or isolation of individuals;
    (xiv) Expenses of providing paid sick and paid family and medical 
leave to public employees to enable compliance with COVID-19 public 
health precautions;
    (xv) Expenses for treatment of the long-term symptoms or effects of 
COVID-19, including post-intensive care syndrome;
    (xvi) Expenses for the improvement of ventilation systems in 
congregate settings, public health facilities, or other public 
facilities;
    (xvii) Expenses related to establishing or enhancing public health 
data systems; and
    (xviii) Mental health treatment, substance misuse treatment, and 
other behavioral health services.
    (2) Public health and safety staff. 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.
    (3) Hiring State and local government staff. Payroll, covered 
benefit, and other costs associated with the recipient increasing the 
number of its employees up to the number of employees that it employed 
on January 27, 2020.
    (4) Assistance to unemployed workers. Assistance, including job 
training, for 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.
    (5) Contributions to State unemployment insurance trust funds. 
Contributions to an unemployment trust fund up to the level required to 
restore the unemployment trust fund to its balance on 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.
    (6) Small businesses. Assistance to small businesses, including 
loans, grants, in-kind assistance, technical assistance or other 
services, that responds to the negative economic impacts of the COVID-
19 public health emergency.
    (7) Nonprofits. Assistance to nonprofit organizations, including 
loans, grants, in-kind assistance, technical assistance or other 
services, that responds to the negative economic impacts of the COVID-
19 public health emergency.
    (8) Assistance to households. Assistance programs, including cash 
assistance programs, that respond to the COVID-19 public health 
emergency.
    (9) Aid to impacted industries. Aid to tourism, travel, 
hospitality, and other impacted industries that responds to the 
negative economic impacts of the COVID-19 public health emergency.
    (10) 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.
    (11) Survivor's benefits. Benefits for the surviving family members 
of individuals who have died from COVID-19, including cash assistance 
to widows, widowers, or dependents of individuals who died of COVID-19.
    (12) Disproportionately impacted populations and communities. A 
program, service, or other assistance that is provided in a qualified 
census tract, that is provided to households and populations living in 
a qualified census tract, that is provided by a Tribal government, or 
that is provided to other households, businesses, or populations 
disproportionately impacted by the COVID-19 public health emergency, 
such as:
    (i) Programs or services that facilitate access to health and 
social services, including:
    (A) Assistance accessing or applying for public benefits or 
services;
    (B) Remediation of lead paint or other lead hazards; and
    (C) Community violence intervention programs;
    (ii) Programs or services that address housing insecurity, lack of 
affordable housing, or homelessness, including:
    (A) Supportive housing or other programs or services to improve 
access to stable, affordable housing among individuals who are 
homeless;
    (B) Development of affordable housing to increase supply of 
affordable and high-quality living units; and
    (C) Housing vouchers and assistance relocating to neighborhoods 
with higher levels of economic opportunity and to reduce concentrated 
areas of low economic opportunity;
    (iii) Programs or services that address or mitigate the impacts of 
the COVID-19 public health emergency on education, including:
    (A) New or expanded early learning services;
    (B) Assistance to high-poverty school districts to advance 
equitable funding across districts and geographies; and
    (C) Educational and evidence-based services to address the 
academic, social, emotional, and mental health needs of students; and
    (iv) Programs or services that address or mitigate the impacts of 
the COVID-19 public health emergency on childhood health or welfare, 
including:
    (A) New or expanded childcare;
    (B) 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
    (C) 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.
    (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, 
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 it prioritizes low- and moderate-income persons. The recipient must 
provide, whether for themselves or on behalf of a grantee, a written 
justification to the Secretary of how the premium pay or grant provided 
under this paragraph (c) responds to eligible workers performing 
essential work if the premium pay or grant would increase an eligible 
worker's total wages and remuneration above 150 percent of such 
eligible worker's residing State's average annual wage for all 
occupations or their residing county's average annual wage, whichever 
is higher.
    (d) Providing government services. For the provision of government 
services to the extent of a reduction in the recipient's general 
revenue, calculated according to paragraphs (d)(1) and (2) of this 
section.
    (1) Frequency. A recipient must calculate the reduction in its 
general revenue using information as-of December 31, 2020, December 31, 
2021, December 31, 2022, and December 31, 2023 (each, a calculation 
date) and following each calculation date.

[[Page 26823]]

    (2) Calculation. A reduction in a recipient's general revenue 
equals:
[GRAPHIC] [TIFF OMITTED] TR17MY21.003


Where:

Base Year Revenue is the recipient's general revenue for the most 
recent full fiscal year prior to the COVD-19 public health 
emergency;
Growth Adjustment is equal to the greater of 4.1 percent (or 0.041) 
and the recipient's average annual revenue growth over the three 
full fiscal years prior to the COVID-19 public health emergency.
n equals the number of months elapsed from the end of the base year 
to the calculation date.
Actual General Revenue is a recipient's actual general revenue 
collected during 12-month period ending on each calculation date;
Subscript t denotes the specific calculation date.

    (e) To make necessary investments in infrastructure. A recipient 
may use funds to make investments in:
    (1) Clean Water State Revolving Fund and Drinking Water State 
Revolving Fund investments. Projects or activities of the type that 
would be eligible under section 603(c) of the Federal Water Pollution 
Control Act (33 U.S.C. 1383(c)) or section 1452 of the Safe Drinking 
Water Act (42 U.S.C. 300j-12); or,
    (2) Broadband. Broadband infrastructure that is designed to provide 
service to unserved or underserved households and businesses and that 
is designed to, upon completion:
    (i) Reliably meet or exceed symmetrical 100 Mbps download speed and 
upload speeds; or
    (ii) 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 meeting the standards set forth in 
paragraph (e)(2)(i) of this section:
    (A) Reliably meet or exceed 100 Mbps download speed and between at 
least 20 Mbps and 100 Mbps upload speed; and
    (B) Be scalable to a minimum of 100 Mbps download speed and 100 
Mbps upload speed.


Sec.  35.7   Pensions.

    A recipient 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 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).


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, Sec.  35.6, or Sec.  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, Treasury will 
calculate any amounts subject to recoupment resulting from a violation 
of Sec.  35.5, Sec.  35.6, or Sec.  35.7 as the amounts used in 
violation of such restrictions.
    (2) Violations of Sec.  35.8. Treasury 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,

[[Page 26824]]

    (ii) The amount of funds received by such recipient.
    (c) Notice. If Treasury calculates an amount subject to recoupment 
under paragraph (b) of this section, Treasury will provide the 
recipient a written notice of the amount subject to recoupment along 
with an explanation of such amounts.
    (d) Request for reconsideration. Unless Treasury extends the time 
period, within 60 calendar days of receipt of a notice of recoupment 
provided under paragraph (c) of this section, a recipient may submit a 
written request to Treasury 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 Treasury 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 Treasury extends the 
time period, within 60 calendar days of receipt of the recipient's 
request for reconsideration provided pursuant to paragraph (d) of this 
section, 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.
    (f) Repayment of funds. Unless Treasury extends the time period, a 
recipient shall repay to the Secretary any amounts subject to 
recoupment in accordance with instructions provided by Treasury:
    (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.


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 the date that is 
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 at least 30 days prior to the date 
referenced in paragraph (a) 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 
subpart 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 Treasury pursuant to section 
603(b)(2)(B) of the Social Security Act shall distribute the amount of 
the payment to nonentitlement units of 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. 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 January 27, 2020, and a State or Territory may rely 
on such certification for purposes of complying with this paragraph 
(b).
    (c) Units of general local government. Each State or Territory that 
receives a payment from Treasury 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.

Laurie Schaffer,
Acting General Counsel.
[FR Doc. 2021-10283 Filed 5-13-21; 11:15 am]
BILLING CODE 4810-AK-P