[Federal Register Volume 88, Number 181 (Wednesday, September 20, 2023)]
[Rules and Regulations]
[Pages 64986-65037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17446]



[[Page 64985]]

Vol. 88

Wednesday,

No. 181

September 20, 2023

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. 88, No. 181 / Wednesday, September 20, 2023 / 
Rules and Regulations  

[[Page 64986]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 35

RIN 1505-AC81


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 is issuing an interim final rule 
to implement the amendments made by the Consolidated Appropriations 
Act, 2023 with respect to 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 September 20, 2023.
    Comment date: Comments must be received on or before November 20, 
2023.

ADDRESSES: Please submit comments electronically through the Federal 
eRulemaking Portal: https://www.regulations.gov. Comments can be mailed 
to the Office of Recovery Programs, 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 captioned with 
``Coronavirus State and Local Fiscal Recovery Funds 2023 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 https://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: Jessica Milano, Acting Chief Recovery 
Officer, Office of Recovery Programs, Department of the Treasury, (844) 
529-9527.

SUPPLEMENTARY INFORMATION: 

I. Introduction

Overview

    Since the first case of coronavirus disease 2019 (COVID-19) was 
discovered in the United States in January 2020, the pandemic has 
caused severe, intertwined public health and economic crises. In March 
2021, as these crises continued, the American Rescue Plan Act of 2021 
(ARPA) \1\ established the Coronavirus State and Local Fiscal Recovery 
Funds (SLFRF) to provide state, local, and Tribal governments \2\ with 
the resources needed to respond to the pandemic and its economic 
effects and to build a stronger, more equitable economy during the 
recovery. Upon enactment, the ARPA provided that SLFRF funds \3\ may be 
used:
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    \1\ Sec. 9901, Public Law 117-2, 135 Stat. 223.
    \2\ Throughout this Supplementary Information, Treasury uses 
``state, local, and Tribal governments'' or ``recipients'' to refer 
generally to governments receiving SLFRF funds; this includes 
states, territories, Tribal governments, counties, metropolitan 
cities, and nonentitlement units of local government.
    \3\ The ARPA added section 602 of the Social Security Act, which 
created the State Fiscal Recovery Fund, and section 603 of the 
Social Security Act, which created the Local Fiscal Recovery Fund 
(together, SLFRF). Sections 602 and 603 contain substantially 
similar eligible uses; the primary difference between the two 
sections is that section 602 established a fund for states, 
territories, and Tribal governments and section 603 established a 
fund for metropolitan cities, nonentitlement units of local 
government, and counties.
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    (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.
    The U.S. Department of the Treasury (Treasury) issued an interim 
final rule implementing the SLFRF program on May 10, 2021 (the 2021 
interim final rule).\4\ Treasury received over 1,500 public comments on 
the 2021 interim final rule.
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    \4\ See 86 FR 26786 (May 17, 2021).
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Executive Summary of the 2022 Final Rule

    On January 6, 2022, Treasury issued a final rule which responded to 
public comments and made several clarifications and changes to the 
provisions of the 2021 interim final rule to provide broader 
flexibility and greater simplicity in the SLFRF program.\5\ The 2022 
final rule provided for the following:
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    \5\ See 87 FR 4338 (Jan. 27, 2022).
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     Public Health and Negative Economic Impacts: Recipients 
may use SLFRF funds for a non-exhaustive list of programs, services, 
and capital expenditures that support an eligible COVID-19 public 
health or economic response. Recipients must serve ``impacted'' and 
``disproportionately impacted'' classes of beneficiaries: impacted 
classes experienced the general, broad-based impacts of the pandemic, 
while disproportionately impacted classes faced more severe impacts, 
often due to preexisting disparities.
    Public health eligible uses include COVID-19 mitigation and 
prevention, medical expenses, behavioral healthcare, and preventing and 
responding to violence. Negative economic impact eligible uses include 
assistance to households such as job training, rent, mortgage, or 
utility aid, affordable housing development, childcare; assistance to 
small businesses or nonprofits such as through loans or grants to 
mitigate financial hardship; assistance to impacted industries like 
travel, tourism, and hospitality that faced substantial pandemic 
impacts; or assistance to address impacts to the public sector, for 
example by hiring public sector workers to pre-pandemic levels.
     Premium Pay: Recipients may provide premium pay to a broad 
set of essential workers.
     Revenue Loss: Recipients may determine revenue loss due to 
the COVID-19 public health emergency by claiming the standard allowance 
of up to $10 million or completing the full revenue loss calculation. 
Recipients may use funds under revenue loss for government services.
     Water, Sewer, and Broadband Infrastructure: Recipients may 
use SLFRF funds for eligible broadband infrastructure investments to 
improve access, affordability, and reliability; and for eligible water 
and sewer infrastructure investments, including a broad range of lead 
remediation and stormwater management projects.

Impact of SLFRF

    Since the launch of the SLFRF program, Treasury has disbursed 
99.99% of SLFRF funds to approximately 30,000 state, local, and

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Tribal governments, and these recipients have moved swiftly to deploy 
this funding in their communities. According to data reported to 
Treasury through March 31, 2023,\6\ states and the largest local 
governments have budgeted nearly 80% of their total available SLFRF 
funds. Recipients are using SLFRF funds across a wide variety of 
eligible uses to meet the unique needs of their communities.\7\ 
Recipients have been using SLFRF funds to shore up state and local 
finances, helping to avoid a repeat of the Great Recession when state 
and local government budgets were a drag on the overall economy for 14 
quarters of the recovery.\8\ Recipients reported that they budgeted 
nearly $100 billion for over 53,000 revenue replacement projects to 
provide fiscal stability through the provision of government services. 
Recipients have also budgeted over $12 billion across over 5,800 
projects to respond to the public health needs of the COVID-19 pandemic 
including by providing testing, vaccinations, staffing, and outreach to 
underserved communities; budgeted $17 billion in projects to meet 
housing needs including through rental assistance, development and 
preservation of affordable housing, and permanent supportive housing 
services; budgeted over $11 billion to support workers through job 
training for populations impacted by the pandemic, to provide premium 
pay, and to invest in public sector capacity building; and budgeted 
over $26 billion for water, sewer, and broadband infrastructure 
projects. Overall, the impact of the SLFRF program is already proving 
to be transformative for communities across the country as recipients 
use SLFRF funds to build a more equitable economic recovery and help 
the country be better prepared for future crises.
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    \6\ U.S. Department of the Treasury, April 2023 Quarterly and 
Annual Reporting Analysis, https://home.treasury.gov/system/files/136/April-2023-Reporting-Blog-Post.pdf.
    \7\ The figures included in this interim final rule include 
Project and Expenditure reporting data covering the period ending 
March 31, 2023 from the all SLFRF recipients. It includes quarterly 
data reported by states, territories, and metropolitan cities and 
counties with a population over 250,000 or an allocation over $10 
million, non-entitlement units of local government allocated more 
than $10 million, and Tribal governments allocated over $30 million 
from January 1, 2023-March 31, 2023 and annual data reported by 
metropolitan cities and counties with populations less than 250,000 
and an allocation less than $10 million, Tribal governments with an 
allocation less than $30 million, and non-entitlement units of local 
government allocated less than $10 million from April 1, 2022 to 
March 31, 2023.
    \8\ Press Release, U.S. Department of the Treasury, Remarks by 
Secretary of the Treasury Janet L. Yellen at National Association of 
Counties 2023 Legislative Conference (Feb. 14, 2023).
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Overview of the Consolidated Appropriations Act, 2023

    On December 29, 2022, the Consolidated Appropriations Act, 2023 
(the 2023 CAA) was signed into law by the President,\9\ amending 
sections 602 and 603 of the Social Security Act to give state, local, 
and Tribal governments more flexibility to use SLFRF funds to provide 
emergency relief from natural disasters, build critical infrastructure, 
and support community development.
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    \9\ Public Law 117-328 (Dec. 29, 2022).
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    Generally, the 2023 CAA does not alter the existing eligible use 
categories originally provided by the ARPA. All eligible uses described 
in the 2022 final rule remain available to recipients. The 2023 CAA 
codifies the option for recipients to use up to $10 million, which 
Treasury termed the ``standard allowance,'' to replace lost revenue and 
use that funding to provide government services in lieu of calculating 
revenue loss according to the formula set forth in the 2022 final rule. 
Otherwise, the 2023 CAA provides for new eligible uses.
    The 2023 CAA provides that state, local, and Tribal governments may 
use SLFRF funds to provide emergency relief from natural disasters or 
the negative economic impacts of natural disasters, including temporary 
emergency housing, food assistance, financial assistance for lost 
wages, or other immediate needs. As described later in this interim 
final rule, the emergency relief from natural disasters eligible use 
category is subject to the same program administration requirements as 
the four existing eligible uses in the SLFRF program, including the 
obligation deadline of December 31, 2024, and expenditure deadline of 
December 31, 2026.
    The 2023 CAA also grants the authority for recipients to use SLFRF 
funds for additional infrastructure projects, including projects 
eligible under certain Department of Transportation programs (Surface 
Transportation projects) and projects eligible under Title I of the 
Housing and Community Development Act of 1974 (Title I projects). The 
2023 CAA also provides additional requirements that apply to SLFRF 
funds used for Surface Transportation and Title I projects. These 
additional requirements provided for in the 2023 CAA are outlined 
below:
     The total amount of SLFRF funds a recipient may direct 
toward Surface Transportation and Title I projects is capped at the 
greater of $10 million and 30% of a recipient's total SLFRF award.
     Except as otherwise determined by the Secretary, the use 
of SLFRF funds for Surface Transportation and Title I projects is also 
subject to certain other laws, including the requirements of titles 23, 
40, and 49 of the U.S. Code, title I of the Housing and Community 
Development Act of 1974, and the National Environmental Policy Act of 
1969.
     SLFRF funds used for Surface Transportation and Title I 
projects must supplement, not supplant, other Federal, state, 
territorial, Tribal, and local government funds (as applicable) that 
are otherwise available for these projects. This provision does not 
apply to funds used under the emergency relief from natural disasters 
eligible use category.
     Recipients must obligate funds used for Surface 
Transportation projects and Title I projects by December 31, 2024 (the 
same obligation deadline that applies to the other eligible uses) and 
must expend funds by September 30, 2026. This expenditure deadline is 
three months earlier than the expenditure deadline for all other 
eligible uses.
     Treasury may delegate oversight and administration of the 
requirements associated with funds used for Surface Transportation 
projects and Title I projects to the appropriate Federal agency. This 
interim final rule discusses how the Department of Transportation will 
oversee funds expended for certain Surface Transportation projects.
    Sections 602 and 603 of the Social Security Act specify two 
restrictions on uses of funds: for recipients other than Tribal 
governments, funds may not be used for deposits into any pension fund 
and, in the case of states and territories only, funds may not be used 
to directly or indirectly offset a reduction in net tax revenue 
resulting from a change in law, regulation, or administrative 
interpretation during the covered period. The 2023 CAA did not amend 
these restrictions.
    Thus, sections 602(c)(1) and 603(c)(1) of the Social Security Act, 
as amended by the 2023 CAA, provide that SLFRF 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;

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    (c) For the provision of government services up to an amount equal 
to the greater of--
    (i) The amount of the reduction in revenue due to the COVID-19 
public health emergency relative to revenue collected in the most 
recent full fiscal year prior to the emergency; or
    (ii) $10,000,000
    (d) To make necessary investments in water, sewer, or broadband 
infrastructure; or
    (e) To provide emergency relief from natural disasters or the 
negative economic impacts of natural disasters, including temporary 
emergency housing, food assistance, financial assistance for lost 
wages, or other immediate needs.
    Sections 602(c)(4) and 603(c)(5) of the Social Security Act, as 
amended by the Infrastructure Investment and Jobs Act, provide that 
SLFRF funds may be used for an authorized Bureau of Reclamation project 
for purposes of satisfying any non-Federal matching requirement 
required for the project.\10\
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    \10\ See section 40909 of Public Law 117-58, 135 Stat. 429, 1126 
(Nov. 15, 2021).
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    Sections 602(c)(5) and 603(c)(6) of the Social Security Act, as 
added by the 2023 CAA, provide that SLFRF funds may be used for Surface 
Transportation projects and Title I projects, including in some cases 
to satisfy a non-Federal share requirement applicable to certain 
projects or to repay a loan provided under one of the Surface 
Transportation programs.

Structure of the Supplementary Information

    Following this Introduction, this Supplementary Information is 
organized into four sections: (1) Eligible Uses, (2) Discussion of 
Revenue Loss and Program Administration Provisions, (3) Comments and 
Effective Date, and (4) Regulatory Analyses. Recipients seeking 
information regarding the original four eligible uses in the SLFRF 
program generally may reference the 2022 final rule and other SLFRF 
program guidance.
    The Eligible Uses section describes the standards for determining 
eligible uses of funds in each of the eligible use categories provided 
in the 2023 CAA:

(1) Emergency Relief from Natural Disasters
(2) Surface Transportation Projects and Title I Projects
    a. Surface Transportation Projects
    b. Title I Projects

    As with the 2022 final rule, each eligible use category has 
separate and distinct standards for assessing whether a use of funds is 
eligible. Standards, restrictions, or other provisions in one eligible 
use category do not apply to other categories. Therefore, recipients 
should first determine which eligible use category a potential use of 
funds fits within, then assess whether the potential use of funds meets 
the eligibility standard or criteria for that category. Recipients 
using funds for Surface Transportation projects receiving funding from 
the Department of Transportation must consult with the Department of 
Transportation before using SLFRF funds for these projects.
    In the Emergency Relief from Natural Disasters section of this 
interim final rule, Treasury identifies a non-exhaustive list of 
specific uses of funds that are eligible, called ``enumerated eligible 
uses,'' that provide emergency relief from the physical or negative 
economic impacts of natural disasters. The sections discussing Surface 
Transportation projects and Title I projects specifically describe the 
eligible projects articulated by the statute.
    The Discussion of Revenue Loss and Program Administration 
Provisions section provides additional information, where relevant, to 
clarify the availability of the standard allowance, discuss program 
requirements applicable to the new eligible uses, and describe relevant 
distinctions between the requirements of the 2022 final rule and this 
interim final rule. This section includes:

(1) Revenue Loss
(2) Timeline for Use of SLFRF Funds
(3) Use of Funds for Match or Cost-Share Requirements
(4) Reporting
(5) Uniform Guidance

    Next, the Comments and Effective Date section discusses the 
effective date and comment period for this interim final rule. Finally, 
the Regulatory Analyses section provides Treasury's analysis of the 
impacts of this rulemaking, as required by several laws, regulations, 
and Executive Orders. This section discusses the impact of the 
amendments in the 2023 CAA, where relevant. Please reference the 2022 
final rule for the regulatory analyses of the impacts of the 2022 final 
rule.
    Throughout this SUPPLEMENTARY INFORMATION, statements using the 
terms ``should'' or ``must'' refer to requirements. Statements using 
the term ``encourage'' or ``advise'' refer to recommendations, not 
requirements.
    This SUPPLEMENTARY INFORMATION references three rule-making 
documents. Statements referencing ``the 2021 interim final rule'' refer 
to the rule released May 10, 2021, and published May 17, 2021. 
Statements referencing ``the 2022 final rule'' refer to the rule 
released January 6, 2022 and published January 27, 2022. Statements 
referencing ``this interim final rule'' reference this rule, released 
August 4, 2023, and published September 20, 2023.

Uses of Funds Not Specifically Identified as Eligible in This Interim 
Final Rule

    Even if a use of funds is not specifically identified as eligible 
in this interim final rule, recipients may still be able to direct 
SLFRF funds toward that purpose as described further below.
    First, the eligible uses described in the 2022 final rule remain 
available to recipients, and recipients may continue to pursue eligible 
projects under the 2022 final rule. For example, under the revenue loss 
eligible use category, recipients have broad latitude to use funds for 
government services up to their amount of revenue loss due to the 
pandemic, provided that other restrictions on use do not apply. A 
potential use of funds that does not fit within the other eligible use 
categories in this interim final rule or in the 2022 final rule may be 
permissible as a government service. Please reference the 2022 final 
rule for further information.
    Second, the eligible use category for providing emergency relief 
from natural disasters provides a non-exhaustive list of enumerated 
eligible uses, which means that the listed eligible uses include some, 
but not all, of the uses of funds that could be eligible under this 
eligible use category. This interim final rule outlines a standard for 
determining other eligible forms of emergency relief, beyond those 
specifically enumerated. If a recipient would like to pursue a use of 
funds to provide emergency relief that is not specifically enumerated, 
the recipient should use the standards and associated guidance to 
assess whether the use of funds is eligible.
    Third, as described further below, many of the uses in the Title I 
projects eligible use category are also eligible in the public health 
and negative economic impacts eligible use category, discussed in the 
2022 final rule, where there is no cap on the amount of SLFRF funds 
that may be directed toward an eligible use. Furthermore, the public 
health and negative economic impacts eligible use category also offers 
a standard for determining if other uses of funds, beyond those 
specifically enumerated, are eligible. Recipients seeking to use SLFRF 
funds for Title I projects may consider the relevant eligible uses and 
available funding levels to determine which eligible use category best 
supports their community's needs. As noted above, this interim final 
rule did

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not alter the public health and negative economic impacts eligible use 
category. Please see the 2022 final rule for more information.

Request for Comments

    Treasury seeks comment on sections addressing the new eligible 
uses, Emergency Relief from Natural Disasters, Surface Transportation 
projects, and Title I projects. To better facilitate public comment, 
Treasury has included specific questions in the relevant sections of 
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 the new eligible 
uses.

II. Eligible Uses

A. Emergency Relief From Natural Disasters

Background
    The 2023 CAA amended sections 602 and 603 of the Social Security 
Act to permit recipients to use SLFRF funds to ``provide emergency 
relief from natural disasters or the negative economic impacts of 
natural disasters, including temporary emergency housing, food 
assistance, financial assistance for lost wages, or other immediate 
needs.'' As state, local, and Tribal governments spend billions of 
dollars a year to respond to the impacts of natural disasters that are 
growing in size, scale, and frequency, often as a result of climate 
change,\11\ this new eligible use supports recipients in responding to 
the varied and evolving needs of their communities with SLFRF funds 
already on hand.
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    \11\ Billion-dollar disaster events account for the majority 
(>80%) of the damage from all recorded U.S. weather and climate 
events per NCEI and Munich Re. NOAA National Centers for 
Environmental Information (NCEI), U.S. Billion-Dollar Weather and 
Climate Disasters (2023), https://www.ncei.noaa.gov/access/billions/
, DOI: 10.25921/stkw-7w73.
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    Since 1980, there have been 341 natural disasters in the United 
States that reached or exceeded damages valued at $1 billion, causing 
15,821 deaths and resulting in nearly $2.5 trillion in damages.\12\ In 
recent years, costly U.S. natural disasters have become even more 
frequent, in part due to the impacts of climate change, which are known 
to create more frequent and intense droughts and storms,\13\ lengthen 
wildfire seasons in the Western States,\14\ and increase heavy rainfall 
events in the contiguous 48 states.\15\ In 2020, 2021, and 2022, there 
were an average of 20 weather and climate disasters each year that 
reached or exceeded damages valued at $1 billion, compared to an 
average of 12.8 weather and climate disasters annually from 2010 to 
2019.\16\ From 2020 to 2022 alone, these billion-dollar natural 
disasters caused 1,460 deaths and resulted in damages valued at $434.6 
billion.\17\
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    \12\ See id.
    \13\ U.S. Department of the Interior, US Geological Survey, 
Climate FAQ: How can climate change affect natural disasters? 
(2023), https://www.usgs.gov/faqs/how-can-climate-change-affect-
natural-
disasters#:~:text=With%20increasing%20global%20surface%20temperatures
,more%20powerful%20storms%20to%20develop.
    \14\ NOAA NCEI, U.S. Billion-Dollar Weather and Climate 
Disasters (2023), https://www.ncei.noaa.gov/access/billions/, DOI: 
10.25921/stkw-7w73.
    \15\ In recent years, a larger percentage of precipitation has 
come in the form of intense single-day events. Environmental 
Protection Agency, ``Climate Change Indicators: Heavy 
Precipitation,'' Figure 1: Extreme One-Day Precipitation Events in 
the Contiguous 48 states, 1910-2020 (Aug. 1, 2022). https://www.epa.gov/climate-indicators/climate-change-indicators-heavy-precipitation.
    \16\ NOAA NCEI, U.S. Billion-Dollar Weather and Climate 
Disasters (2023), https://www.ncei.noaa.gov/access/billions/, DOI: 
10.25921/stkw-7w73.
    \17\ See id.
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    The impacts of natural disasters range from loss of life and other 
consequences for health and safety to destruction of property and 
infrastructure and disruption of economic activity. The increasing 
prevalence of natural disasters and corresponding increased costs of 
responding to and recovering from natural disasters places additional 
burden on state, local, and Tribal governments.\18\ This burden is 
experienced throughout communities, including through strains placed on 
public infrastructure and on households, ranging from impacts to 
housing, food, water, wages, and other needs.
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    \18\ See id.
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    The U.S. Census Bureau found that approximately 3.3 million people 
were displaced from their homes by natural disasters in 2022.\19\ Even 
when individuals and families in an impacted area are not displaced 
after a natural disaster, they may face significant costs to repair 
homes to become livable again.\20\ Natural disasters also can disrupt 
regular access to food and water, causing food insecurity and reliance 
on support from disaster relief organizations.\21\ Furthermore, the 
damage caused by natural disasters can cause short-term earnings 
losses, as it may physically prevent individuals from working, whether 
due to housing displacement, physical barriers in accessing their place 
of employment or business, sustained damage to their place of 
employment or business, or injuries sustained as a result of the 
natural disaster.\22\ Natural disasters also can generate a significant 
volume of debris \23\ and damage buildings and infrastructure that 
provide critical or essential services to the general public, such as 
educational, utility, emergency, medical, and other services, creating 
strains on local governments and other responders.
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    \19\ U.S. Census Bureau. Household Pulse Survey: Displaced in 
Last Year by Natural Disaster (2023). https://www.census.gov/data-tools/demo/hhp/#/?measures=DISPLACED.
    \20\ Harvard University's Joint Center for Housing Studies 
estimates that disaster-related home repairs and improvements cost 
$300 million in annual spending for every $10 billion in disaster 
losses incurred in the three years prior. Kermit. Baker & Alexander 
Hermann, Joint Center for Housing Studies of Harvard University. 
Rebuilding from 2017's Natural Disasters: When, For What, and How 
Much?, https://www.jchs.harvard.edu/blog/rebuilding-from-2017s-natural-disasters-when-for-what-and-how-much.
    \21\ Centers for Disease Control and Prevention, Natural 
Disaster and Severe Weather, Food and Water Needs: Preparing for a 
Disaster or Emergency (Jan. 29, 2019).
    \22\ Jeffrey A. Groen, et al, Census Bureau, Center for Economic 
Studies. Storms and Jobs: The Effect of Hurricanes on Individuals' 
Employment and Earnings over the Long Term, https://www2.census.gov/ces/wp/2015/CES-WP-15-21.pdf.
    \23\ Linda Luther, Congressional Research Service, R44941, 
Disaster Debris Management: Requirements, Challenges, and Federal 
Agency Roles (2017).
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    While the impacts of a natural disaster can be widespread, 
communities that are historically underserved often experience 
heightened impacts as a result of underlying disparities and ability to 
prepare for disasters,\24\ resiliency of homes to natural 
disasters,\25\ risk of food insecurity,\26\ ability to recover 
financially after a natural disaster,\27\ and ultimately their ability 
to quickly return to social and economic life after a natural 
disaster.\28\ Tribal governments, for example, are the first and 
sometimes the only responders to natural disasters that impact their 
communities.\29\ Despite this responsibility, Tribal emergency 
management capacity has been underfunded over the years,

[[Page 64990]]

limiting Tribal governments' access to disaster resources before, 
during, or after the disaster strikes.\30\
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    \24\ Federal Emergency Management Agency (FEMA), 2022-2026 FEMA 
Strategic Plan (2023).
    \25\ Substance Abuse and Mental Health Services Administration, 
Disaster Technical Assistance Center Supplemental Research 
Bulleting, Greater Impacts: How Disasters Affect People of Low 
Socioeconomic Status (2017).
    \26\ Kevin M. Fitzpatrick, et al., Food Insecurity in the Post-
Hurricane Harvey Setting: Risks and Resources in the Midst of 
Uncertainty, 17(22), Int. J. Environ. Res.Public Health 8424, 
(2020).
    \27\ Caroline Ratcliffe, et al., Urban Institute, Insult to 
Injury Natural Disasters and Residents' Financial Health 7 (2019).
    \28\ FEMA, 2022-2026 FEMA Strategic Plan (2023).
    \29\ National Congress of American Indians, Indian Country FY 
2022 Budget Request (2023), 47-54. https://www.ncai.org/resources/ncai-publications/NCAI_IndianCountry_FY2022_BudgetRequest.pdf.
    \30\ See Id.
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    This interim final rule provides significant flexibility for 
recipients to use SLFRF funds to provide emergency relief from the 
widespread physical and negative economic impacts of natural disasters. 
Recognizing that communities that have been historically underserved 
often experience deeper impacts of natural disasters due in part to 
differences that exist prior to the occurrence of a natural disaster, 
Treasury encourages recipients to consider how the emergency relief 
they provide supports all communities in resuming their lives after a 
natural disaster and building resiliency to future natural disasters.
    In the section that follows, this interim final rule discusses how 
recipients may use SLFRF funds to provide emergency relief from the 
physical or negative economic impacts of natural disasters, including 
the standards for identifying a natural disaster and responsive 
emergency relief.
1. Standards for Providing Emergency Relief From Natural Disasters
    This section of the interim final rule discusses the standards for 
providing emergency relief from the physical or negative economic 
impacts of natural disasters. Generally, a recipient should undertake 
the following two-step process:
    1. Identify a natural disaster that has occurred or is expected to 
occur imminently, or a natural disaster that is threatened to occur in 
the future.
    2. Identify emergency relief that responds to the physical or 
negative economic impacts, or potential physical or negative economic 
impacts, of the identified natural disaster. The emergency relief must 
be related and reasonably proportional to the impact identified.
    This interim final rule implements the framework described above by 
defining natural disaster, defining emergency relief, and providing a 
non-exhaustive list of examples of emergency relief that may be 
provided. In addition to this non-exhaustive list, recipients may use 
the two-step framework above to identify and provide additional types 
of emergency relief in response to the physical or negative economic 
impacts, or the potential for such impacts, of an identified natural 
disaster.
    The eligible uses set forth in this interim final rule provide 
flexibility to recipients to respond to the widespread physical and 
economic impacts of natural disasters in their communities. Treasury 
encourages recipients to consider how the provision of emergency relief 
can support communities that have been historically underserved and are 
more at risk of the impacts of natural disasters.
2. Identifying Natural Disasters
    This interim final rule explains that for the purposes of the SLFRF 
program, a natural disaster is defined as a hurricane, tornado, storm, 
flood, high water, wind-driven water, tidal wave, tsunami, earthquake, 
volcanic eruption, landslide, mudslide, snowstorm, drought, or fire, in 
each case attributable to natural causes, that causes or may cause 
substantial damage, injury, or imminent threat to civilian property or 
persons. A natural disaster may also include another type of natural 
catastrophe, attributable to natural causes, that causes, or may cause 
substantial damage, injury, or imminent threat to civilian property or 
persons. This definition provides recipients the flexibility to 
determine an event to be a natural disaster even if it is not of a type 
specifically listed in the definition. This definition is based on the 
definition of natural disaster under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.) (the 
Stafford Act), which provides the statutory authority for most Federal 
disaster response activities, including as they pertain to Federal 
Emergency Management Agency (FEMA) assistance and programs.\31\ The 
Stafford Act provides the framework for an orderly means of assistance 
by the Federal government to state, local, and Tribal governments in 
carrying out their responsibilities to alleviate the suffering and 
damage that result from such disasters.\32\
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    \31\ See 42 U.S.C. 5195a(a)(2).
    \32\ FEMA, Stafford Act, as Amended, P-592 vol. 1 (2021).
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3. Identifying Emergency Relief
    This interim final rule defines emergency relief as assistance that 
is needed to save lives and to protect property and public health and 
safety, or to lessen or avert the threat of catastrophe. This 
definition of emergency relief is based on the Stafford Act's 
definition of ``emergency.'' \33\
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    \33\ See 42 U.S.C. 5122(1) (``'Emergency' means any occasion or 
instance for which, in the determination of the President, Federal 
assistance is needed to supplement State and local efforts and 
capabilities to save lives and to protect property and public health 
and safety, or to lessen or avert the threat of a catastrophe in any 
part of the United States.'')
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    Emergency relief must be related and reasonably proportional to the 
physical or negative economic impacts of a natural disaster that has 
occurred or is expected to occur imminently, or to the potential 
physical or negative economic impacts of a natural disaster that is 
threatened to occur in the future. Emergency relief that bears no 
relation or is grossly disproportionate to the type or extent of the 
impacts of the natural disaster would not be an eligible use.
    In the case of a response to a natural disaster that has occurred 
or is expected to occur imminently, communities, individuals, or areas 
that did not or are not expected to experience the natural disaster or 
its negative economic impacts would not be eligible to receive 
emergency relief in response to the natural disaster. In evaluating 
whether a use is reasonably proportional, recipients should consider 
relevant factors about the natural disaster's actual or imminent 
physical or negative economic impacts and the emergency relief to be 
provided, including the availability of other assistance such as 
insurance or other Federal assistance. For more information, recipients 
should reference the section titled Duplication of Benefits below. 
Recipients should also consider the efficacy, cost, cost effectiveness, 
and time to delivery of the response.
    When providing emergency relief from a natural disaster that is 
threatened to occur in the future, mitigation activities to address the 
potential physical or economic impacts of the natural disaster in a 
community where the natural disaster is unlikely to occur would not be 
considered a related and reasonably proportional response because there 
would not be an established need to provide emergency relief from that 
natural disaster, for example.
    Available emergency relief based on the immediacy of the natural 
disaster. This section discusses how recipients may distinguish between 
a natural disaster that has already occurred or is expected to occur 
imminently, and the threat of a future occurrence of a natural 
disaster. As discussed, recipients may provide emergency relief from 
natural disasters in the form of assistance that is needed to save 
lives and to protect property and public health and safety or to lessen 
or avert the threat of catastrophe.
    To provide emergency relief before, during, or after a natural 
disaster that has already occurred or is expected to occur imminently, 
the recipient should first identify how the disaster meets the 
definition of natural disaster as described above. The natural disaster

[[Page 64991]]

that has occurred or is imminent must be, or have been, the subject of 
an emergency declaration or designation applicable to the recipient's 
geography and jurisdiction in the form of (1) an emergency declaration 
pursuant to the Stafford Act; (2) an emergency declaration by the 
Governor of a state pursuant to state law; or (3) an emergency 
declaration made by a Tribal government. If one of the declarations 
listed in (1)-(3) is not available, recipients may satisfy this 
requirement through the designation of an event as a natural disaster 
by the chief executive (or equivalent) of the recipient government, 
provided that the chief executive documents that the event meets the 
definition of natural disaster provided above. Recipients should 
maintain documentation consistent with the terms and conditions of the 
award agreement. Note that if the governor of a state declares an 
emergency for the entire state, the local governments within that state 
are not also required to declare an emergency in order to use SLFRF 
funds to provide emergency relief. A recipient government does not need 
to submit to Treasury for approval of the designation of a natural 
disaster; Treasury will defer to the reasonable determination of the 
recipient's chief executive (or equivalent) in making such a 
designation. For information about duplication of benefits requirements 
when responding to natural disasters with Stafford Act declarations, 
please reference the section titled Duplication of Benefits below.
    As discussed above, Treasury's definition of emergency relief 
includes assistance to lessen or avert the threat of a future natural 
disaster, based on the Stafford Act definition of ``emergency,'' which 
enables recipients to provide mitigation activities. By providing 
mitigation activities that would reduce the threat of a future natural 
disaster's potential impacts, the recipient will have reduced the 
severity of threats to life, risks of loss of economic activity, and 
costs to private and public entities to respond and recover, because 
less damage will be incurred.
    To provide emergency relief in the form of mitigation activities, 
to lessen or avert the threat of a future natural disaster, a recipient 
should document evidence of historical patterns or predictions of 
natural disasters (as defined above) that would reasonably demonstrate 
the likelihood of the future occurrence of a natural disaster in its 
community. A recipient should use this evidence to support its 
determination that mitigation activities would be related and 
reasonably proportional to the threat of a natural disaster that it is 
addressing. For example, a recipient could utilize FEMA's National Risk 
Index \34\ to represent the community's relative risk for hurricanes to 
establish the likelihood of a future hurricane, or a Tribal government 
could cite Indigenous Traditional Ecological Knowledge to determine 
future risks.\35\
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    \34\ See FEMA's National Risk Index available at https://hazards.fema.gov/nri/hurricane.
    \35\ Memorandum from the White House Office of Science and 
Technology Policy & the White House Council on Environmental Quality 
on Indigenous Traditional Ecological Knowledge and Federal Decision 
Making (Nov. 15, 2021). For example, a Tribe may be able to rely on 
Indigenous Traditional Ecological Knowledge in considering the 
threat of wildfires on Tribal lands.
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4. Eligible Types of Emergency Relief
    Sections 602 and 603 of the Social Security Act, as amended by the 
2023 CAA, provide a non-exhaustive list of four types of emergency 
relief from natural disasters or their negative economic impacts that 
may be provided using SLFRF funds: temporary emergency housing, food 
assistance, financial assistance from lost wages, and other immediate 
needs. This interim final rule discusses and expands on this list, to 
enable recipients both to complement existing disaster relief funding 
and to address gaps in assistance.
    To facilitate implementation, this interim final rule identifies a 
non-exhaustive list of eligible emergency relief, which means that the 
listed eligible uses include some, but not all, of the uses of funds 
that could be eligible. This non-exhaustive list of eligible emergency 
relief does not distinguish between emergency relief from the physical 
impacts of natural disasters and emergency relief from the negative 
economic impacts of natural disasters. However, the list does 
distinguish between emergency relief provided from a declared or 
designated natural disaster that has occurred or is expected to occur 
imminently, and emergency relief provided from the threat of a future 
natural disaster. To assess whether additional types of emergency 
relief would be eligible under this category beyond the non-exhaustive 
list provided below, recipients should first identify a natural 
disaster and then identify emergency relief that responds to the 
natural disaster's physical or negative economic impacts according to 
the standards discussed in the prior section.
    Treasury has included references to programs currently administered 
by FEMA in the discussion of the eligible uses below. These references 
do not impose any of the associated requirements of these FEMA-
administered programs. Furthermore, recipients are not required to 
receive pre-approval from FEMA or Treasury to use SLFRF funds for these 
eligible uses.
    Duplication of Benefits. As a general matter, recipients may not 
claim use of Federal financial assistance to cover a cost that the 
recipient is covering with another Federal award, by insurance, or from 
another source,\36\ and subrecipients are bound by the same 
requirements as recipients.\37\ Specific requirements apply when 
recipients use Federal funds to provide assistance with respect to 
losses suffered as a result of a major disaster or emergency declared 
under the Stafford Act (disaster losses). Under the emergency relief 
from natural disasters eligible use category, certain duplication of 
benefits requirements under the Stafford Act, in addition to all 
relevant Uniform Guidance cost principles requirements, would apply to 
recipients using funds for events that both a) satisfy this interim 
final rule's definition of natural disaster and b) form the basis for a 
Stafford Act declaration of an emergency or major disaster. 
Accordingly, if a recipient uses SLFRF funds to cover disaster losses 
under the emergency relief from natural disasters eligible use 
category, it must abide by the Stafford Act's prohibition on 
duplication of benefits: Recipients may not provide financial 
assistance to a person, business concern, or other entity with respect 
to disaster losses for which such beneficiary will receive financial 
assistance under any other program or from insurance or any other 
source.\38\ A recipient may provide assistance with respect to disaster 
losses to a person, business concern, or other entity that is or may be 
entitled to receive assistance for those losses from another source, if 
such person, business concern, or other entity has not received the 
other benefits by the time of application for SLFRF funds and the 
person, business concern, or other entity agrees to repay any 
duplicative

[[Page 64992]]

assistance to the SLFRF recipient.\39\ Recipients may also use SLFRF 
funds to provide assistance for any portion of disaster losses not 
covered by other benefits.\40\
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    \36\ See, e.g., 2 CFR 200.1 Definitions (defining ``improper 
payment'' to include ``duplicate payments''); 2 CFR 200.403 Factors 
affecting allowability of costs (providing that ``in order to be 
allowable under Federal awards'' costs must ``[b]e necessary and 
reasonable for the performance of the Federal award and be allocable 
thereto under these principles'' and ``[n]ot be included as a cost . 
. . of any other federally-financed program in either the current or 
a prior period'').
    \37\ 2 CFR 200.101(b)(2) (``The terms and conditions of Federal 
awards (including this part [2 CFR part 200, the Uniform Guidance]) 
flow down to subawards to subrecipients unless a particular section 
of this part or the terms and conditions of the Federal award 
specifically indicate otherwise.'').
    \38\ See 5 U.S.C. 5155(a).
    \39\ See 5 U.S.C. 5155(b)(1).
    \40\ See 5 U.S.C. 5155(b)(3).
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    To ensure compliance with the Stafford Act's prohibition on 
duplication of benefits, SLFRF recipients are advised to review FEMA's 
guidance codified at 44 CFR 206.191.
    FEMA's guidance sets forth a ``delivery sequence'' for assistance 
with disaster losses, providing that sources of assistance later in the 
sequence are considered ``duplicative'' if paid despite the 
availability of other sources of assistance earlier in the 
sequence.\41\ That is, if two sources provide assistance for the same 
disaster losses, the assistance provided later in the delivery sequence 
is considered duplicative and must not be paid or if paid must be 
repaid when the duplication of benefits occurs. While not listed in 
section 206.191's delivery sequence, recipients should treat SLFRF 
funds as last in the delivery sequence, unless the recipient, in 
consultation with the appropriate FEMA Regional Administrator or state 
disaster-assistance administrator, determines that another sequence is 
appropriate.\42\ For example, assistance with disaster losses would 
generally be duplicative of insurance covering those same losses 
because insurance comes first in the delivery sequence. In that case, 
SLFRF funds should not be used to cover any portion of the disaster 
losses for which insurance benefits are received. The recipient is 
responsible for preventing and rectifying duplication of benefits with 
respect to disaster losses and should coordinate with the relevant FEMA 
Regional Administrator and state disaster assistance administrator, or 
other relevant agencies providing disaster assistance, as described in 
FEMA's guidance.
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    \41\ 44 CFR 206.191(d).
    \42\ As provided in FEMA's guidance, ``If following the delivery 
sequence concept would adversely affect the timely receipt of 
essential assistance by a disaster victim, an agency may offer 
assistance which is the primary responsibility of another agency.'' 
44 CFR 206.191(d)(4).
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    To facilitate compliance with the Stafford Act's prohibition on 
duplication of benefits, Treasury intends to require recipients to 
report their use of SLFRF funds to provide assistance with respect to 
disaster losses. Recipients are further required to notify 
subrecipients and contractors that, when providing assistance in 
response to a Stafford Act Declaration, they are responsible for 
ensuring that beneficiaries disclose any other assistance received for 
the same disaster losses prior to receiving assistance with SLFRF 
funds. Treasury further intends to make the reported information 
available to FEMA, the relevant FEMA Regional Administrator, and other 
agencies providing assistance with respect to disaster losses, as 
appropriate.
    Non-Federal Matching Requirements. The emergency relief enumerated 
eligible uses do not add any new authority for recipients to use SLFRF 
funds to satisfy non-Federal matching requirements of other Federal 
programs. Instead, as described in the 2022 final rule, recipients may 
use SLFRF funds under the revenue loss eligible use category to satisfy 
non-Federal matching requirements. The newly eligible Surface 
Transportation projects and Title I projects, discussed later in this 
interim final rule, also provide recipients the ability to use funds to 
satisfy non-Federal cost share requirements in certain instances. 
Recipients seeking to use SLFRF funds for non-Federal matching 
requirements should reference the section titled Use of Funds for Match 
or Cost-Share Requirements in this interim final rule and the 2022 
final rule for additional information.
a. Declared or Designated Natural Disasters
    Below, Treasury is providing a non-exhaustive list of eligible uses 
that recipients may provide as emergency relief from the physical or 
negative economic impacts of a natural disaster that has a declaration 
or designation, as described above.
    Temporary emergency housing. Recipients may provide emergency 
relief from the physical or negative economic impacts of a natural 
disaster in the form of temporary emergency housing to individuals and 
households including by providing funds for temporary housing for 
households who are unable to live in their home following a natural 
disaster. Examples of temporary emergency housing could include rental 
assistance or reimbursement for hotel costs; providing a temporary 
housing unit when individuals are facing challenges finding permanent 
housing due to shortages caused by a natural disaster; establishing 
other temporary emergency housing, including congregate and non-
congregate shelter (i.e., sheltering individuals in motels, hotels, 
dorms, etc.) before, during, or after a natural disaster; or providing 
shelter following an evacuation due to a natural disaster. Given the 
varying potential impacts of a natural disaster, recipients have 
flexibility to determine the length of time to provide temporary 
emergency housing based on the impact of the natural disaster and the 
housing conditions in their jurisdiction.
    Food assistance. Recipients may provide emergency relief from the 
physical or negative economic impacts of a natural disaster in the form 
of food assistance. As is the case across the SLFRF program, recipients 
may administer programs through a range of other entities, including 
nonprofit and for-profit entities, to carry out eligible uses on behalf 
of the recipient government, including to provide emergency relief in 
the form of food assistance.
    Financial assistance for lost wages. Recipients may provide 
emergency relief from the physical or negative economic impacts of a 
natural disaster in the form of financial assistance for lost wages. As 
with all forms of emergency relief under this eligible use category, 
financial assistance for lost wages must be related and reasonably 
proportional to the impact identified. In making this determination, 
recipients should consider all sources of available relief and other 
resources available to the potential beneficiaries of financial 
assistance.
    Generally, Federal financial assistance programs directed toward 
individuals are designed to target individuals with a specific set of 
circumstances or to provide those who earn up to a specific income 
threshold with a specified amount of assistance. For example, the 
Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public 
Law 116-136, 134 Stat. 281 (March 27, 2020) provided an eligible 
individual a refundable tax credit of up to $1,200 ($2,400 for eligible 
individuals filing a joint tax return), plus $500 per qualifying child 
of the eligible individual. The credit was reduced for taxpayers with 
adjusted gross income that exceeded a threshold. The threshold was 
$150,000 in the case of a joint return, $112,500 in the case of a head 
of household, and $75,000 otherwise. An advance refund of this credit, 
referred to by the IRS as an Economic Impact Payment, was made during 
2020.\43\
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    \43\ For more information on Treasury's Economic Impact Payments 
provided in response to the COVID-19 public health emergency, see 
https://home.treasury.gov/policy-issues/coronavirus/assistance-for-american-families-and-workers/economic-impact-payments.
---------------------------------------------------------------------------

    Recipients may provide financial assistance for lost wages by 
providing supplemental benefits to individuals who are participating in 
state unemployment insurance programs or

[[Page 64993]]

the Department of Labor's Disaster Unemployment Assistance (DUA) 
program at the time the natural disaster occurred or following the 
natural disaster. Supplemental benefits can be provided to any person 
who is impacted by the natural disaster and receiving state 
unemployment insurance program benefits or DUA program benefits.
    The amount of financial assistance for lost wages paid as a 
supplemental benefit to participants in the programs discussed above 
must not exceed $400 a week for the duration of the need for emergency 
relief. This limit was determined to be reasonably proportional through 
the review of other assistance for lost wages, such as the FEMA COVID-
19 Assistance Program for Lost Wages,\44\ which offered participants 
the option to provide claimants a lost wages supplement of up to $400, 
providing additional financial assistance for individuals who were 
participants in other Federal financial assistance programs during the 
height of the COVID-19 emergency. To provide other types of direct 
financial assistance to individuals impacted by natural disasters, 
please refer to the section titled Cash Assistance below.
---------------------------------------------------------------------------

    \44\ Memorandum from President Trump on Authorizing the Other 
Needs Assistance Program for Major Disaster Declarations Related to 
Coronavirus Disease 2019 (Aug. 8, 2020).
---------------------------------------------------------------------------

    Other immediate needs. As discussed above, natural disasters cause 
varied damage to persons, property, and infrastructure. Recipients may 
provide emergency relief from the physical or negative economic impacts 
of natural disasters for other immediate needs not discussed above. 
Below, this interim final rule discusses examples of eligible uses 
available to state, local, and Tribal governments using SLFRF funds to 
address other immediate needs.
    Emergency Protective Measures. Recipients may use SLFRF funds to 
provide emergency protective measures, such as those described in 
Category B of FEMA's Public Assistance program to respond before, 
during, or after a natural disaster.\45\ By referencing Category B 
eligible uses as an illustrative list of the types of emergency 
protective measure recipients may pursue with SLFRF funds, Treasury is 
seeking to simplify the administrability of this eligible use through a 
framework that may already be familiar to recipients. As noted above, 
recipients are not required to comply with the requirements associated 
with FEMA's Public Assistance program and are not required to receive 
pre-approval from FEMA or Treasury to use SLFRF funds for this purpose. 
Category B of FEMA's Public Assistance program includes assistance like 
emergency access, medical care and transport, emergency operations 
center related costs and other activities traditionally undertaken as 
part of emergency response. In considering what ``other activities'' 
are eligible under this category, recipients are encouraged to refer to 
Chapter 7 Section II of FEMA's Public Assistance Program and Policy 
Guide, which discusses Category B Emergency Protection Measures.\46\ 
For Category B Emergency Protection Measures that are only eligible 
under FEMA's Public Assistance program as direct Federal assistance, 
recipients may use SLFRF funds to provide these services directly, such 
as emergency communications or public transportation.
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    \45\ FEMA, FP 104-009-02, Public Assistance Program and Policy 
Guide Version 4 (2020).
    \46\ See id.
---------------------------------------------------------------------------

    Other examples of emergency protective measures include: 
transporting and pre-positioning equipment and resources; flood 
fighting; firefighting; purchasing and distributing supplies and 
commodities; provision of medical care and transport; evacuation and 
sheltering; provision of childcare; demolition of structures; search 
and rescue to locate survivors, household pets, and service animals 
requiring assistance; use or lease of temporary generators for 
facilities that provide essential community services; dissemination of 
information to the public to provide warnings and guidance about health 
and safety hazards; searching to locate and recover human remains; 
storage and interment of unidentified human remains; mass mortuary 
services; construction of emergency berms or temporary levees to 
provide protection from floodwaters or landslides; emergency repairs 
necessary to prevent further damage, such as covering a damaged roof to 
prevent infiltration of rainwater; buttressing, shoring, or bracing 
facilities to stabilize them or prevent collapse; emergency slope 
stabilization; mold remediation; extracting water and clearing mud, 
silt, or other accumulated debris from eligible facilities; taking 
actions to save the lives of animals; and snow removal.
    Debris Removal. Recipients may use SLFRF funds for debris removal 
activities. Generally, this includes the clearance, removal, and 
disposal of vegetative debris (including tree limbs, branches, stumps, 
or trees), construction and demolition debris, sand, mud, silt, gravel, 
rocks, boulders, white goods, and vehicle and vessel wreckage. These 
eligible uses are described further in Category A of FEMA's Public 
Assistance program.\47\ As noted above, recipients are not required to 
receive pre-approval from FEMA or Treasury to use SLFRF funds for these 
eligible uses. Recipients are also not required to comply with the 
requirements associated with FEMA's Public Assistance program.
---------------------------------------------------------------------------

    \47\ See id.
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    Public Infrastructure Repair. Recipients may use SLFRF funds to 
restore public infrastructure damaged by a natural disaster, including 
roads, bridges, and utilities. Recipients may restore public 
infrastructure to its pre-disaster size, capacity, and function in 
accordance with applicable laws, codes, and standards. As part of 
restoring public infrastructure damaged by a natural disaster, 
recipients also may undertake activities that make this restored 
infrastructure more resilient to future natural disasters, helping to 
mitigate the impacts of future natural disasters. For more information 
on how to incorporate mitigation activities into a public 
infrastructure project, please see the section titled Threat of Future 
Natural Disaster: Mitigation Activities below.
    Increased operational and payroll costs. When providing emergency 
relief from the physical or negative economic impacts of natural 
disasters, recipients may need to increase government services due to 
suddenly lacking or limited resources or may need to leverage existing 
government services or government facilities to be responsive as 
quickly and effectively as possible. Recipients may use SLFRF funds for 
increased operating costs, including payroll costs and costs for 
government facilities and government services used before, during, or 
after a natural disaster. This may include social services that are 
directly responsive to an impact from the disaster, representing an 
increased cost of providing those services due to the disaster.
    Cash Assistance. Recipients may use SLFRF funds to provide cash 
assistance for uninsured or underinsured expenses caused by the 
disaster such as repair or replacement of personal property and 
vehicles, or funds for moving and storage, medical, dental, childcare, 
funeral expenses, behavioral health services, and other miscellaneous 
items. The eligible uses are generally modeled on FEMA's Individuals 
and Households program, which provides money and services to 
individuals who have experienced a disaster whose property has been 
damaged or destroyed and whose losses are not covered by

[[Page 64994]]

insurance.\48\ Consistent with the provision of emergency relief 
discussed throughout this section, recipients are not required to 
comply with the requirements associated with FEMA's Individuals and 
Households program to use SLFRF funds for these eligible uses. 
Furthermore, recipients are not required to receive pre-approval from 
FEMA or Treasury to use SLFRF funds for these eligible uses.
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    \48\ FEMA, A guide to the Disaster Declaration process and 
Federal Disaster Assistance, https://www.fema.gov/pdf/rrr/dec_proc.pdf.
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    Recognizing that low-income households often experience deeper 
challenges recovering financially from a natural disaster,\49\ 
recipients may also design cash assistance programs that serve low-
income households that have been impacted by a natural disaster. 
Consistent with Treasury's definition of low-income household in the 
public health and negative economic impacts eligible use category in 
the 2022 final rule, for this purpose a low-income household is one 
with (i) income at or below 185 percent of the Federal Poverty 
Guidelines for the size of its household based on the most recently 
published poverty guidelines by the Department of Health and Human 
Services or (ii) income at or below 40 percent of area median income 
for its county and size of household based on the most recently 
published data by the Department of Housing and Urban Development. 
Treasury will presume that cash assistance provided to low-income 
households impacted by a natural disaster is related and reasonably 
proportional emergency relief to address the negative economic impacts 
of natural disasters.
---------------------------------------------------------------------------

    \49\ Caroline Ratcliffe et al., Urban Institute, Insult to 
Injury Natural Disasters and Residents' Financial Health 7 (2019).
---------------------------------------------------------------------------

    In designing a cash assistance program targeted to low-income 
households impacted by a natural disaster, recipients are not required 
to apply a specific dollar threshold for permissible payments and 
instead, recipients have flexibility in determining the appropriate 
level of cash assistance. This approach enables recipients to respond 
to the particularized natural disaster impacts for their low-income 
community members.
    Home Repairs for Uninhabitable Primary Residences. Recipients may 
use SLFRF funds to rebuild homes or provide home repairs not covered by 
insurance to make residences that meet the criteria below habitable 
again. The residence must be a primary residence and be uninhabitable 
as a result of a natural disaster. As part of making home repairs, 
recipients may undertake activities that make restored homes more 
resilient to future natural disasters, helping to mitigate the impacts 
of future natural disasters. For more information on how to incorporate 
mitigation activities into home repair projects, please see the section 
titled Threat of Future Natural Disaster: Mitigation Activities below. 
This eligible use is generally modeled off of FEMA's Individuals and 
Households program, which provides money and services to individuals 
who have experienced a disaster whose property has been damaged or 
destroyed and whose losses are not covered by insurance.\50\ Uses of 
funds that are eligible under FEMA's Individuals and Households program 
are eligible under the SLFRF, but recipients are not required to comply 
with the requirements associated with FEMA's Individuals and Households 
program and are not required to receive pre-approval from FEMA or 
Treasury to use SLFRF funds for these eligible uses.
---------------------------------------------------------------------------

    \50\ FEMA, A Guide to the Disaster Declaration Process and 
Federal Disaster Assistance, https://www.fema.gov/pdf/rrr/dec_proc.pdf.
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b. Threat of Future Natural Disaster: Mitigation Activities
    In addition to the emergency relief described above, recipients 
also may provide emergency relief to lessen or avert the threat of a 
natural disaster and its potential physical or negative economic 
impacts through mitigation activities. Some examples of eligible 
mitigation activities include the eligible project types described in 
FEMA's Hazard Mitigation Assistance Guidance, such as structure 
elevation, mitigation reconstruction, dry flood proofing, structural 
retrofitting, non-structure retrofitting, wind retrofit, and 
infrastructure retrofit.\51\ Recipients are not required to receive 
pre-approval from FEMA or Treasury to use SLFRF funds for these 
eligible uses. Recipients are also not required to comply with the 
other requirements associated with FEMA's Hazard Mitigation Assistance 
programs.
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    \51\ FEMA, Hazard Mitigation Assistance Guide Hazard Mitigation 
Grant Program, Pre-Disaster Mitigation Program, and Flood Mitigation 
Assistance Program (2015), https://www.fema.gov/sites/default/files/2020-07/fy15_HMA_Guidance.pdf.
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    Mitigation activities may be stand-alone projects that reduce or 
eliminate the potential impacts of the threat of a natural disaster or 
may be incorporated into repair or reconstruction projects that address 
the impacts of a natural disaster. For example, if a recipient is 
repairing the roof of a home damaged by a wildfire, the roof can be 
strengthened or fireproofed to make it more resilient to future 
wildfires as well. Similarly, recipients repairing roads damaged by 
flooding can incorporate drainage or pervious pavement that would 
result in a reduced or eliminated impact of flooding in the future, 
thereby decreasing future costs of repair and impact to the community. 
As discussed above, when identifying the threat of a natural disaster, 
a recipient must have documented evidence that historical patterns or 
predictions that reasonably demonstrate the likelihood of future 
occurrence of a natural disaster in the community.
    Mitigation Activities with Capital Expenditures Exceeding $1 
Million. In the case of mitigation activities with total expected 
capital expenditures of $1 million or greater, recipients other than 
Tribal governments must complete and meet the substantive requirements 
of a Written Justification for the capital expenditures in their 
project. Recipients will submit this Written Justification to Treasury 
as part of the Project & Expenditure report. Treasury will amend the 
Compliance and Reporting Guidance to describe how recipients will 
submit this information.
    As discussed in Timeline for Use of SLFRF Funds section, SLFRF 
funds for this eligible use must be obligated by December 31, 2024, and 
expended by December 31, 2026. Capital expenditures may involve long 
lead-times, and the Written Justification may support recipients in 
analyzing proposed capital expenditures to confirm that they conform to 
the obligation and expenditure timing requirements. Further, such large 
projects may be less likely to be reasonably proportional to the 
potential impacts identified. Treasury is adopting the Written 
Justification requirement in recognition of this and the need for 
consistent documentation and reporting to support monitoring and 
compliance with the ARPA and this interim final rule. For projects with 
capital expenditures that only repair or restore infrastructure to pre-
disaster conditions and do not include mitigation activities, 
recipients are not required to complete a Written Justification.
    As noted above, Tribal governments are not required to complete the 
Written Justification for mitigation activities with total capital 
expenditures of $1 million or greater. Tribal governments generally 
have limited administrative capacity due to their small size and 
corresponding limited ability to supplement staffing for short-term 
programs. In addition, Tribal governments are already subject to

[[Page 64995]]

unique considerations that require additional administrative processes 
and administrative burden for Tribal government decision making, 
including capital expenditures. Tribal governments generally are 
subject to a jurisdictionally complex set of rules and regulations in 
the case of improvements to land for which the title is held in trust 
by the United States for a Tribe (Tribal Trust Lands). This includes 
the requirement in certain circumstances to seek the input or approval 
of one or more Federal agencies such as the Department of the Interior, 
which holds fee title of Tribal Trust Lands.
    As a result of their limited administrative capacity and the unique 
and complex rules and regulations applicable to Tribal governments 
operating on Tribal Trust Lands, Tribal governments would experience 
significant and redundant administrative burden by also being required 
to complete a Written Justification for applicable capital 
expenditures. While Tribal governments are not required to complete the 
Written Justification, associated substantive requirements continue to 
apply, including the requirement that a capital expenditure must be 
related and reasonably proportional to the extent and type of the 
threat or impact being addressed. Note that, as a general matter, 
Treasury may also request further information on SLFRF expenditures and 
projects, including capital expenditures, as part of the regular SLFRF 
reporting and compliance process, including to assess their eligibility 
under this interim final rule.
    Written Justification Requirements for Mitigation Capital 
Expenditures. For non-Tribal government recipients pursuing mitigation 
activities where a Written Justification is required, the Written 
Justification must (1) describe the emergency relief provided by the 
mitigation activity; (2) explain why a capital expenditure is 
appropriate to address the need for emergency relief; and (3) compare 
the proposed mitigation activity capital expenditure against 
alternative capital expenditures that could be made. The information 
required by the Written Justification reflects the framework applicable 
to all uses under the emergency relief from natural disasters eligible 
use category, providing justification for the relatedness and 
reasonable proportionality of the capital expenditure in response to 
the potential impact identified.
    1. Description of emergency relief to be provided and potential 
impact to be addressed: Recipients should provide a description of the 
specific mitigation activities that provide emergency relief and 
explain why emergency relief is needed to lessen or avert the potential 
impacts of the natural disaster that is threatened to occur in the 
future. When appropriate, recipients may provide quantitative 
information on the extent and type of assistance needed to provide 
emergency relief, such as the number of individuals or entities that 
may be affected. As discussed above, when recipients identify a natural 
disaster that is threatened to occur in the future, recipients must 
document evidence of historical patterns or predictions of natural 
disasters that would reasonably demonstrate the likelihood of future 
occurrence of a natural disaster in their communities. In the Written 
Justification, recipients should use this evidence, along with 
considerations of efficacy, cost, cost effectiveness, and time to 
delivery, to support their determinations that mitigation activities 
would be related and reasonably proportional.
    2. Explanation of why a mitigation capital expenditure is 
appropriate: Recipients should provide an assessment demonstrating why 
a mitigation activity capital expenditure is appropriate to address the 
specified potential impact identified. This should include an 
explanation of why existing capital equipment, property, or facilities 
would be inadequate to addressing the potential impact of the threat of 
a natural disaster and why policy changes or additional funding to 
pertinent programs or services would be insufficient without the 
corresponding capital expenditures. Recipients are not required to 
demonstrate that the potential impacts would be irremediable but for 
the additional capital expenditure; rather, they may show that other 
interventions would be inefficient, costly, or otherwise not reasonably 
designed to remedy the need for emergency relief without additional 
capital expenditure.
    3. Comparison of the proposed capital expenditure against 
alternative capital expenditures: Recipients should provide an 
objective comparison of the proposed mitigation capital expenditure 
against at least two alternative capital expenditures and demonstrate 
why their proposed capital expenditure is superior to alternative 
capital expenditures that could be made. Specifically, recipients 
should assess the proposed capital expenditure against at least two 
alternative types or sizes of capital expenditures that are potentially 
effective and reasonably feasible. Where relevant, recipients should 
compare the proposal against the alternative of improving existing 
capital assets already owned or leasing other capital assets. 
Recipients should use quantitative data when available, although they 
are encouraged to supplement with qualitative information and narrative 
description. Recipients that complete analyses with minimal or no 
quantitative data should provide an explanation for doing so.
    In determining whether their proposed mitigation activity capital 
expenditure is superior to alternative capital expenditures, recipients 
should consider the following factors against each selected 
alternative.
    a. A comparison of the effectiveness of the capital expenditures in 
addressing the need for mitigation identified. Recipients should 
generally consider the effectiveness of the mitigation capital 
expenditures in addressing the potential impacts of the threatened 
natural disasters over the useful life of the capital asset and may 
consider metrics such as the number of individuals or entities served, 
when such individuals or entities are estimated to be served, the 
relative time horizons of the project, and consideration of any 
uncertainties or risks involved with the capital expenditure.
    b. A comparison of the expected total cost of the capital 
expenditures. Recipients should consider the expected total cost of the 
mitigation capital expenditure required to construct, purchase, 
install, or improve the capital assets intended to address the need for 
emergency relief from the threat of the natural disaster identified. 
Recipients should include pre-development costs in their calculation 
and may choose to include information on ongoing operational costs, 
although this information is not required. Recipients should balance 
the effectiveness and costs of the proposed capital expenditure against 
alternatives and demonstrate that their proposed capital expenditure is 
superior. Further, recipients should choose the most cost-effective 
option unless it substantively reduces the effectiveness of the capital 
investment in addressing the need for emergency relief from the threat 
of the natural disaster identified.
    Because, in all cases, uses of SLFRF funds to provide emergency 
relief from natural disasters must be related and reasonably 
proportional to actual or potential physical or negative economic 
impacts of a natural disaster, some capital expenditures may not be 
eligible.
    In selecting the $1 million threshold, Treasury recognized that 
mitigation activity capital expenditures vary widely in size and 
therefore would

[[Page 64996]]

benefit from tiered treatment to implement eligibility standards while 
minimizing administrative burden. The $1 million threshold for whether 
a recipient needs to complete a Written Justification will allow 
recipients a simplified pathway to complete smaller projects.
    Expenditures from closely related activities directed toward a 
common purpose are considered part of the scope of one project. These 
expenditures can include capital expenditures, as well as expenditures 
on related programs, services, or other interventions. A project 
includes expenditures that are interdependent (e.g., acquisition of 
land, construction of the facility on the land, and purchase of 
equipment), or are of the same or similar type and would be utilized 
for a common purpose (e.g., acquisition of barricades that would be 
used to provide emergency relief from natural disasters). Recipients 
must not segment a larger project into smaller projects in order to 
evade review. A recipient undertaking a set of identical or similar 
projects may complete one Written Justification comprehensively 
addressing the entire set of projects.
    Treasury employs a risk-based approach to overall program 
management and monitoring, which may result in heightened scrutiny on 
larger projects. Accordingly, recipients pursuing projects with larger 
mitigation capital expenditures should complete more detailed analyses 
for their Written Justification, commensurate with the scale of the 
project.
    Strong Labor Standards in Construction. As discussed in the 2022 
final rule, Treasury continues to encourage recipients to carry out 
public infrastructure and mitigation activities in ways that produce 
high-quality work, avert disruptive and costly delays, and promote 
efficiency. Treasury encourages recipients to 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. Treasury also recommends that recipients 
prioritize in their procurement decisions employers that can 
demonstrate that their workforce meets high safety and training 
standards (e.g., professional certification, licensure, and/or robust 
in-house training), that hire local workers and/or workers from 
historically underserved communities, and that directly employ their 
workforce or have policies and practices in place to ensure contractors 
and subcontractors meet high labor standards. Treasury further 
encourages recipients to prioritize employers (including contractors 
and subcontractors) without recent violations of Federal and state 
labor and employment laws.
    Treasury believes that such practices will promote effective and 
efficient delivery of high-quality projects and support the economic 
recovery through strong employment opportunities for workers. Such 
practices will reduce likelihood of potential project challenges like 
work stoppages or safety accidents, while ensuring a reliable supply of 
skilled labor and minimizing disruptions, such as those associated with 
labor disputes or workplace injuries. That will, in turn, promote on-
time and on-budget delivery.
    Furthermore, among other requirements contained in 2 CFR part 200, 
Appendix II, all contracts made by a recipient or subrecipient in 
excess of $100,000 with respect to projects that involve employment of 
mechanics or laborers must include a provision for compliance with 
certain provisions of the Contract Work Hours and Safety Standards Act, 
40 U.S.C. 3702 and 3704, as supplemented by Department of Labor 
regulations (29 CFR part 5). Treasury will continue to seek information 
from recipients on their workforce plans and public infrastructure and 
mitigation activities undertaken with SLFRF funds.
5. Administration
    As discussed above, generally, the emergency relief from natural 
disasters eligible use category is subject to the same program 
administration requirements as the existing eligible uses in the SLFRF 
program, as discussed in the 2022 final rule, including the obligation 
deadline of December 31, 2024 and expenditure deadline of December 31, 
2026. As discussed in this interim final rule, recipients may use SLFRF 
funds under this eligible use category for costs incurred beginning 
December 29, 2022, regardless of the date of the declared disaster. As 
with all other eligible uses in the SLFRF program, the general 
restrictions on use outlined in the 2022 final rule apply to funds 
expended under the emergency relief from natural disasters eligible use 
category. Additionally, recipients may reference the section titled 
Distinguishing Subrecipients versus Beneficiaries of the 2022 final 
rule for clarification of the distinction between subrecipients and 
beneficiaries.
    Recipients are not required to obtain project pre-approval from 
Treasury or any other Federal agency when using SLFRF funds for natural 
disaster projects unless otherwise required by Federal law. While 
reference to FEMA, the Department of Labor, or other Federal emergency 
assistance programs is provided to assist recipients in understanding 
the types of emergency relief projects eligible to be funded with SLFRF 
funds, recipients do not need to apply for funding from the applicable 
state programs or through any Federal programs. Similarly, this interim 
final rule generally does not incorporate program requirements or 
guidance that attach to other Federal emergency programs. However, as 
noted above, recipients should be aware of other Federal or state laws 
or regulations that may apply to projects, independent of SLFRF funding 
conditions, that may require approval from another Federal or state 
agency.
    Question 1: Are there other types of services or costs that 
Treasury should consider as enumerated eligible uses to provide 
emergency relief from the physical or negative economic impacts of 
natural disasters? Describe how these provide emergency relief from 
natural disasters.
    Question 2: What, if any, additional criteria should Treasury 
consider to ensure that emergency relief responds to the physical or 
negative economic impacts of natural disasters?
    Question 3: What additional clarity or guidance would benefit 
recipients in identifying eligible mitigation activities?

B. Using Funds for Surface Transportation and Title I Projects

    To support SLFRF recipients in meeting the infrastructure needs of 
their communities, the 2023 CAA also provided the authority for 
recipients to use SLFRF funds for certain infrastructure projects, 
including projects eligible under certain programs administered by the 
Department of Transportation (Surface Transportation projects) and 
projects eligible under Title I of the Housing and Community 
Development Act of 1974 (Title I projects).\52\ The 2023 CAA imposes 
requirements on SLFRF funds used for Surface Transportation projects 
and Title I projects beyond those requirements that apply to all other 
SLFRF eligible use categories. In the sections separately discussing 
Surface Transportation projects and Title I projects below, this 
interim final rule summarizes the types of eligible projects within 
each category, provides references to relevant guidance for the 
projects, and discusses how the requirements imposed by the 2023 CAA 
apply to each category.
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    \52\ See 42 U.S.C. 802(c)(5) and 803(c)(6).
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    The 2023 CAA provides that the total amount of SLFRF funds that a 
recipient

[[Page 64997]]

may use for Surface Transportation projects and Title I projects 
together shall not exceed the greater of $10 million and 30% of a 
recipient's SLFRF allocation. This limitation does not apply to SLFRF 
funds used for the other eligible uses in the SLFRF program, including 
funds used for the provision of government services under the revenue 
loss eligible use category.
    This limitation applies to the total amount of SLFRF funds that a 
recipient may use for Surface Transportation projects and Title I 
projects taken together. For example, an SLFRF recipient with an 
allocation of $20 million would have $10 million (as $10 million is 
greater than 30% of the recipient's allocation--$6 million) to direct 
to Surface Transportation projects and Title I projects. This recipient 
could direct, for example, $5 million toward Surface Transportation 
projects and $5 million toward Title I projects, or $3 million toward 
Surface Transportation projects and $7 million toward Title I projects. 
This same recipient may choose to spend additional funding over and 
above this $10 million on projects that might otherwise be eligible as 
Surface Transportation or Title I projects under a different eligible 
use category, such as the revenue loss eligible use category, under 
which recipients may use SLFRF funds for the provision of government 
services.
    The 2023 CAA provides that, except as otherwise determined by the 
Secretary or the head of a Federal agency to whom oversight and 
administration of the requirements have been delegated, the 
requirements of other laws, including titles 23, 40, and 49 of the U.S. 
Code, title I of the Housing and Community Development Act of 1974 
(HCDA), and the National Environmental Policy Act of 1969 (NEPA), apply 
to recipients' use of SLFRF funds for Surface Transportation projects 
and Title I projects. These requirements include the project approval 
and certification requirements of titles 23, 40, and 49 of the U.S. 
Code and title I of the HCDA and the regulations adopted 
thereunder.\53\ The application of the Surface Transportation project 
approval requirements to the SLFRF program means that recipients must 
obtain the approval of the Secretary or the head of the Federal agency 
to whom authority has been delegated by the Secretary prior to 
obligating and expending funds on Surface Transportation projects. 
Title I of the HCDA provides for project-level approval only in the 
case of project environmental review. The application of this 
requirement to the SLFRF program means that recipients must comply with 
the environmental review requirements set forth in the HUD statute and 
regulations, submit a certification to Treasury, and receive approval 
prior to obligating and expending funds on Title I projects, as 
discussed below.
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    \53\ The application of these approval and certification 
requirements to SLFRF for these projects is indicated by the 
statute's specific reference to NEPA. NEPA only applies to federal 
actions such as a federal agency approval. Without application of 
the approval requirements of the cross-referenced statutes, there 
would be no generally applicable federal action associated with the 
use of SLFRF funds for Surface Transportation projects and Title I 
projects.
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    The provisions of the 2023 CAA reflect an intent that the usual 
requirements that apply to Surface Transportation projects funded by 
DOT should generally also apply to such projects as funded by Treasury 
under the SLFRF program but also a recognition that the DOT regulatory 
requirements would need to be harmonized with the particular structure 
of the SLFRF program. Treasury interprets the ``except as otherwise 
determined'' clause referenced above to permit Treasury to determine 
not to apply certain requirements of the cross-referenced statutes when 
such requirements would conflict with the existing SLFRF framework or 
otherwise would be likely to preclude recipients from exercising the 
additional authorities provided by the 2023 CAA.
    As a general matter, DOT must approve recipients' use of funds for 
projects funded by DOT. However, under the existing SLFRF framework, 
Treasury provided funds to recipients either in full or in two tranches 
rather than disbursing funds to recipients after approving the use of 
funds for particular projects, and recipients must obligate and expend 
such funds by set deadlines. If the SLFRF program did not have 
obligation and expenditure deadlines, recipients might have time to go 
through a process of receiving Treasury approval under Pathway Two 
prior to using the funds that they had already received on Surface 
Transportation projects. But it is possible that recipients will seek 
to use funds under Pathway Two for hundreds of Surface Transportation 
projects in total, and application of the statutory and regulatory 
approval requirements to such a large volume of projects likely would 
preclude recipients from carrying out such projects while meeting the 
statutory deadlines for obligation and expenditure of funds. To ensure 
that recipients are able to exercise the additional authorities 
provided by the 2023 CAA prior to the December 31, 2024 obligation 
deadline, Treasury has determined not to require recipients to obtain 
the approval of the Secretary prior to obligating and expending funds 
on Surface Transportation projects that present less risk, as described 
under the streamlined framework of Pathway Two in the section that 
follows. Treasury expects far fewer recipients to seek to use SLFRF 
funds for higher-risk projects involving greater complexity. By not 
applying the approval requirements to the more numerous but less risky 
types of projects, Treasury will avoid the likelihood that most 
recipients would effectively be unable to engage in any Surface 
Transportation projects other than those qualifying for Pathway One.
    The approval requirements will apply to Surface Transportation 
projects that do not meet the streamlined framework criteria, and as 
discussed further below, Treasury will design a process, based in part 
on the comments to this interim final rule, for recipients seeking to 
fund these larger, more complex projects. Similarly, as discussed 
further below, project-level certification requirements related to 
environmental review contemplated by title I of the HCDA will apply to 
the use of SLFRF funds for the Title I projects eligible use category. 
Treasury provides more information regarding approval and certification 
requirements applicable to Surface Transportation projects and Title I 
projects, respectively, in the sections titled Pathway Two: Surface 
Transportation Projects Not Receiving Funding from DOT and Applicable 
Requirements for Title I Projects below.
    Recipients using funds for Surface Transportation projects that are 
subject to approval requirements must satisfy NEPA environmental review 
requirements. Recipients using funds for Surface Transportation 
projects that are not subject to approval requirements (pursuant to the 
streamlined approach described under Pathway Two in the section that 
follows) are not required to conduct NEPA environmental reviews. 
Recipients using funds for Title I projects must satisfy NEPA 
environmental review requirements based on the procedures set forth in 
title I of the HCDA, the associated regulations, and as implemented by 
Treasury. For more information about how the requirements of NEPA apply 
to Surface Transportation projects and Title I projects, respectively, 
refer to the sections titled Pathway Two: Applicable Requirements and 
Applicable Requirements for Title I Projects below. As discussed in 
Treasury's guidance to date, NEPA does not apply to the other eligible 
uses in the SLFRF program as described in the 2022 final rule, though 
recipients that blend SLFRF funds with

[[Page 64998]]

other Federal funds may be subject to additional requirements 
associated with the other Federal funds.\54\
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    \54\ For additional information about blending and braiding 
SLFRF funds with other funding sources, refer to SLFRF Final Rule 
FAQ 4.8, available at https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf.
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    As is the case with all projects using SLFRF funds, projects must 
comply with applicable Federal statutes, regulations, and executive 
orders, including environmental laws and Federal civil rights and 
nondiscrimination requirements,\55\ which include prohibitions on 
discrimination on the basis of race, color, national origin, sex 
(including sexual orientation and gender identity), religion, 
disability, age, or familial status (having children under the age of 
18).\56\ State, Tribal, and local procurement, contracting, and 
conflicts-of-interest laws and regulations, including, for example, 
required procurement processes for contractor selection or competitive 
price setting, also may apply to recipients' use of SLFRF funds.
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    \55\ Applicable federal civil rights and non-discrimination laws 
include Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d; 
Title VIII of the Civil Rights Act of 1968 (the Fair Housing Act), 
as amended by the Fair Housing Amendments Act of 1988, 42 U.S.C. 
3602, et seq; Section 504 of the Rehabilitation Act of 1973, 29 
U.S.C. 794; Title IX of the Education Amendments Act of 1972, 20 
U.S.C. 1681; and the Age Discrimination Act of 1975, 42 U.S.C. 6101 
et. seq.
    \56\ As described in SLFRF Final Rule FAQ 12.1, award terms and 
conditions for Treasury's pandemic recovery programs, including 
SLFRF, do not impose antidiscrimination requirements on Tribal 
governments beyond what would otherwise apply under Federal law.
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    The 2023 CAA provides that SLFRF funds used for Surface 
Transportation projects and Title I projects must supplement, not 
supplant other Federal, state, territorial, Tribal, and local 
government funds (as applicable) that are otherwise available for these 
projects. This interim final rule discusses below how the supplement, 
not supplant provision applies to uses of funds for Surface 
Transportation projects and Title I projects. The non-supplant 
requirement does not apply to the other SLFRF eligible use categories, 
including the emergency relief from natural disasters eligible use 
category.
    The 2023 CAA provides that funds used for Surface Transportation 
projects and Title I projects must be obligated by December 31, 2024 
and expended by September 30, 2026. The expenditure deadline for these 
eligible uses provided by the 2023 CAA is earlier than the December 31, 
2026 expenditure deadline associated with the other eligible uses in 
the program, including emergency relief from natural disasters.
    The 2023 CAA provides that Treasury may delegate to the appropriate 
Federal agency oversight and administration of the requirements 
associated with the use of funds for Surface Transportation projects 
and Title I projects. As discussed below, Treasury is delegating 
oversight and administration of Surface Transportation projects under 
Pathway One (described below) to the Department of Transportation 
(DOT). Recipients that direct SLFRF funds toward Surface Transportation 
projects under Pathway One will be required to complete the existing 
DOT reporting requirements that already apply to projects funded by DOT 
and to report certain information to Treasury. See the sections titled 
Pathway One: Delegation of Authority and Discussion of Revenue Loss and 
Program Administration Provisions for further information.
    Below, this interim final rule discusses how recipients may use 
SLFRF funds for Surface Transportation projects and Title I projects, 
respectively.
1. Surface Transportation Projects
Background
    As added by the 2023 CAA, sections 602(c)(5) and 603(c)(6) of the 
Social Security Act provide that state, local, and Tribal governments 
may use SLFRF funds, subject to limitations, for surface transportation 
infrastructure projects (Surface Transportation projects) eligible 
under certain programs administered by DOT. As described above, 
recipients may only use the greater of 30% of their SLFRF award and $10 
million, not to exceed a recipient's allocation, for all Surface 
Transportation projects (described in this section) and Title I 
projects (described in the section that follows) taken together.
    Under the Surface Transportation projects eligible use category, 
SLFRF funds may be used for a project eligible under any of sections 
117, 119, 124, 133, 148, 149, 151(f), 165, 167, 173, 175, 176, 202, 
203, and 204 of title 23 of the U.S. Code; an activity to carry out 
section 134 of title 23 of the U.S. Code; a project eligible under the 
Rebuilding American Infrastructure with Sustainability and Equity 
(RAISE) grant program; a project eligible for credit assistance under 
the Transportation Infrastructure Finance and Innovation Act (TIFIA) 
program under chapter 6 of title 23 of the U.S. Code; a project that 
furthers the completion of a designated route of the Appalachian 
Development Highway System under section 14501 of title 40 of the U.S. 
Code; a project eligible under any of sections 5307, 5309, 5311, 5337, 
5339, and 6703 of title 49 of the U.S. Code; or a project eligible 
under the bridge replacement, rehabilitation, preservation, protection, 
and construction program under paragraph (1) under the heading 
``HIGHWAY INFRASTRUCTURE PROGRAM'' under the heading ``FEDERAL HIGHWAY 
ADMINISTRATION'' under the heading ``DEPARTMENT OF TRANSPORTATION'' 
under title VIII of division J of the Infrastructure Investment and 
Jobs Act.
    The statute also provides that, to the extent consistent with 
guidance or rules issued by the Secretary or the head of a Federal 
agency to which the Secretary has delegated authority, recipients may 
use SLFRF funds to satisfy a non-Federal share requirement applicable 
to a project eligible under section 117 of title 23, sections 5309 or 
6701 of title 49, or a project eligible for credit assistance under the 
TIFIA program under chapter 6 of title 23. Additionally, in the case of 
a project eligible for credit assistance under the TIFIA program, 
recipients may use SLFRF funds to repay a loan provided under such 
program.
    The 2023 CAA provides that the requirements of the relevant titles 
of the U.S. Code and the National Environmental Policy Act of 1969 
apply to the use of the SLFRF for Surface Transportation projects, 
except as otherwise determined by the Secretary or the head of a 
Federal agency to whom oversight and administration of the requirements 
have been delegated. Additionally, SLFRF funds may only be used to 
supplement, and not supplant, other Federal, state, territorial, 
Tribal, and local government funds (as applicable) that are otherwise 
available for the eligible project.
Overview
    There are different ways in which recipients may use SLFRF funds 
for Surface Transportation projects under the new authority provided by 
the 2023 CAA. In this interim final rule, Treasury has organized 
discussion of the Surface Transportation projects eligible use category 
in terms of three ``pathways.''
    First, recipients may use SLFRF funds (i) in the case of existing 
eligible projects that receive funding from DOT, to expand the project 
or to cover additional unexpected costs associated with the project and 
(ii) in the case of eligible projects that have not yet received but 
will receive funding from DOT prior to December 31, 2024, the 
obligation deadline for the SLFRF program, to contribute SLFRF funds to 
expand the scope of the project, to cover additional unexpected costs, 
or in other

[[Page 64999]]

ways that supplement DOT funding, as described in the section titled 
Prohibition on Supplanting Other Funds. In each case, the Surface 
Transportation project must be subject to DOT's oversight during the 
period that SLFRF funds are used for the project. Recipients pursuing 
Surface Transportation projects that are receiving or will receive 
funding from DOT should be prepared to work with DOT to determine 
whether the use of SLFRF funds for a particular project meets the 
relevant requirements. In addition, the project must meet the 
requirements and restrictions that apply to Surface Transportation 
projects funded through the SLFRF program described further below. 
Furthermore, in the case of projects funded under certain DOT programs 
like INFRA and RAISE, the addition of Federal funds--including SLFRF 
funds--to an existing project is subject to approval from DOT. 
Throughout this interim final rule, Treasury refers to this eligible 
use as ``Pathway One.''
    Second, this interim final rule lays out a pathway for all SLFRF 
recipients, including those that may not typically or currently be a 
direct recipient of DOT funding, to use SLFRF funds to finance Surface 
Transportation projects that will be overseen and administered by 
Treasury. Within this pathway, Treasury is articulating a streamlined 
framework for recipients to use up to $10 million in SLFRF funds per 
project on Surface Transportation projects that do not include DOT 
funding but meet certain parameters. Though these projects do not 
include DOT funding, recipients may choose to blend SLFRF funds with 
other sources of funds to carry out the projects. Recipients using 
SLFRF funds for these projects are not required to consult with DOT and 
instead these projects will be administered and overseen by Treasury. 
Throughout this interim final rule, Treasury refers to this eligible 
use as ``Pathway Two.'' For additional information, refer to the 
section titled Pathway Two: Surface Transportation Projects not 
Receiving Funding from DOT.
    Recipients interested in financing Surface Transportation projects 
outside of the parameters of the streamlined framework in Pathway Two 
may submit a notice of intent to Treasury, as described further below 
in the section titled Pathway Two: Surface Transportation Projects not 
Receiving Funding from DOT. Based on these notices of intent and 
comments to this interim final rule, Treasury will provide instructions 
as to how recipients may apply for approval to carry out their proposed 
projects and guidance as to any additional requirements associated with 
such projects.
    Third, recipients may use SLFRF funds to repay a TIFIA loan or to 
satisfy a non-Federal share requirement for projects under four Surface 
Transportation programs: INFRA Grants, Fixed Guideway Capital 
Investment Grants, Mega Grants, and projects eligible for credit 
assistance under the TIFIA program. Recipients should consult with DOT 
before pursuing projects under this third pathway. Throughout this 
interim final rule, Treasury refers to this eligible use as ``Pathway 
Three.'' For more information, refer to the section titled Pathway 
Three: Non-Federal Share Requirements for Certain Surface 
Transportation Requirements.
    In the following sections, this interim final rule discusses the 
specific types of Surface Transportation projects that are eligible 
uses of SLFRF funds and the applicable requirements and limitations.
Prohibition on Supplanting Other Funds
    For all three pathways for Surface Transportation projects, 
recipients must comply with the requirement provided in the 2023 CAA 
that funds used for Surface Transportation projects shall ``supplement, 
and not supplant, other Federal, State, territorial, Tribal, and local 
government funds (as applicable) otherwise available for such uses.'' 
The phrase ``other . . . funds available for such uses'' refers to (i) 
in the case of non-Federal funds, non-SLFRF funds that have been 
obligated for specific uses that are eligible under the Surface 
Transportation projects eligible use category or (ii) in the case of 
Federal funds, funds that a Federal agency has committed to a 
particular project pursuant to an award agreement or otherwise, 
including funds identified in an awarded DOT grant agreement for use on 
Surface Transportation projects.
    Under prong (i), for the purpose of identifying non-Federal funds 
that have been obligated for specific uses, the definition of 
``obligation'' used in the 2022 final rule applies, which is ``an order 
placed for property and services and entering into contracts, 
subawards, and similar transactions that require payment.'' \57\ As 
such, a recipient may not de-obligate funds that were obligated for 
specific uses that are eligible under this section (e.g., by 
cancelling, amending, renegotiating, or otherwise revising or 
abrogating a contract, subaward, or similar transaction that requires 
payment) and replace those previously obligated funds with SLFRF funds 
under this eligible use category.
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    \57\ See Final Rule FAQ 13.17 for additional information about 
obligations. This approach applies a concrete standard that is known 
to SLFRF recipients and administrable by Treasury.
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    The restriction in prong (ii) on replacing funds that a Federal 
agency has committed to a particular project pursuant to an award 
agreement or otherwise applies to all funding sources covered by the 
commitment. For example, for DOT-funded projects subject to a grant 
agreement, the restriction extends to DOT funds, other Federal funds, 
and any other funds identified by the recipient for the purpose of 
satisfying cost-share requirements of the project.
    Thus, a recipient may not de-obligate funds and replace those 
previously obligated funds with SLFRF funds under this eligible use 
category. Nor may a recipient use SLFRF to replace Federal or non-
Federal funds identified in a Federal commitment, such as an award 
agreement. However, a recipient may use SLFRF funds under this eligible 
use category:
    (1) to provide additional funding to a project without reducing the 
amount of other funds obligated to such project, thereby funding 
additional activities or expanding the scope of projects; or
    (2) to undertake a project for which funds have not been previously 
obligated or identified in a Federal commitment, such as an award 
agreement.
    For example, consider a municipal road project. The recipient has 
not yet entered into an award agreement with DOT but is expecting that 
Federal funds from DOT will make up a certain amount of the project 
funds and is planning on using local funds to satisfy cost-share 
requirements. Because the recipient has not yet entered into an award 
agreement with DOT, even if the project is included in the 
transportation improvement program (TIP) or a statewide transportation 
improvement program (STIP), the recipient may choose to alter the 
funding mixture to include SLFRF funding, after consulting with DOT. 
However, if in that same scenario, the recipient had entered into an 
award agreement with DOT that included a certain amount of DOT funding 
and a remaining amount of funds from local sources, then the funds for 
the project may not be replaced with SLFRF funds. The recipient could 
not supplant Federal or non-Federal funds identified to DOT as part of 
the grant award or terminate or renegotiate an existing contract for 
the construction of the project and use SLFRF funds to replace the 
funds previously identified or obligated for that purpose. In this 
scenario, recipients would be able to use

[[Page 65000]]

SLFRF funds to expand the scope of a project or cover unexpected costs, 
after consulting with DOT.
    In the case of projects previously included within a TIP or STIP 
that have received funding from DOT, recipients should reflect 
increased overall project funding resulting from the addition of SLFRF 
funds within the STIP or TIP, even when the sources of project funding 
may have changed prior to identification in the DOT grant award or 
obligation.
a. Pathway One: Surface Transportation Projects Receiving Funding From 
DOT
    This section of the interim final rule describes how recipients may 
use SLFRF funds under Pathway One (i) in the case of existing eligible 
projects that are receiving funding from DOT to expand the project or 
to cover additional unexpected costs associated with the project and 
(ii) in the case of eligible projects that have not yet but will 
receive funding from DOT prior to December 31, 2024, the obligation 
deadline for the SLFRF program, to contribute SLFRF funds to the 
project, to expand the project, to cover additional unexpected costs, 
or in other ways that supplement DOT funding. In each case, the Surface 
Transportation project must be subject to DOT's oversight during the 
period that SLFRF funds are used for the project. Recipients seeking to 
use SLFRF funds for Surface Transportation projects under Pathway One 
should consult with DOT and refer to the requirements discussed in the 
following subsection. Generally, and as discussed further below, when 
using SLFRF funds under Pathway One, the statutory requirements that 
normally apply when carrying out Surface Transportation projects funded 
by DOT continue to apply. In the case of some DOT-funded programs like 
INFRA and RAISE, the addition of other Federal funds--including SLFRF 
funds--to an existing project is subject to approval from DOT. This 
interim final rule describes how recipients may use SLFRF funds under 
Pathway One, summarizes the programs under which recipients may direct 
SLFRF funds toward eligible projects, and outlines the requirements 
associated with this pathway. Recipients using SLFRF funds under 
Pathway One must comply with the requirement that SLFRF funds 
supplement and not supplant other funds, described above.
    In the case of existing projects currently receiving funding from 
DOT, recipients may use SLFRF funds to expand the project and to cover 
additional unexpected costs associated with the project. Using SLFRF 
funds for these purposes is a way for recipients to supplement but not 
supplant funds in existing projects receiving funding from DOT. In each 
case, the project must meet the requirements and restrictions that 
apply to Surface Transportation projects funded through the SLFRF 
program.
    For eligible projects that have not yet but will receive funding 
from DOT prior to the SLFRF program's December 31, 2024, obligation 
deadline, recipients also may contribute SLFRF funds to the project, as 
long as the project meets the requirements and restrictions that apply 
to Surface Transportation projects funded through the SLFRF program, 
including the non-supplant requirements. For these projects that have 
not yet been funded, recipients may have more flexibility to contribute 
SLFRF funds for purposes beyond expanding the scope of the project and 
covering additional unexpected costs, because there may be more ways to 
supplement DOT funding without supplanting other funds. For example, in 
addition to using SLFRF funds to expand project scope or to cover 
additional unexpected costs that may arise, recipients may also be able 
to commit SLFRF funds in the initial planning phase of the project as 
part of the recipient's cost-share obligation, to the extent that DOT 
rules permit Federal funds to constitute a portion of the project's 
cost sharing or matching requirement. Recipients should note that 
planned contributions of SLFRF funds to a project that has not yet 
received funding from DOT will affect the determination of total 
Federal funds that would support the project and may affect 
calculations of the non-Federal funds cost-share contribution required 
in order to be in compliance with DOT requirements.
    Under Pathway One, recipients may use SLFRF funds for projects 
eligible under the programs described below. This interim final rule 
briefly summarizes each program and references existing implementation 
guidance, where available. Recipients should refer to the relevant 
program guidance for DOT programs of interest for further information 
and detail about the types of projects eligible under those programs.
     INFRA Grants \58\--602(c)(5)(B)(i) of the Social Security 
Act--Also known as Nationally Significant Multimodal Freight & Highway 
Projects, INFRA awards are competitive grants for multimodal freight 
and highway projects of national or regional significance to improve 
the safety, efficiency, and reliability of the movement of freight and 
people in and across rural and urban areas. For additional information 
about INFRA Grants, see USDOT INFRA Grant Program.\59\
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    \58\ See 23 U.S.C. 117.
    \59\ See the U.S. Department of Transportation's INFRA Grants 
Program website at https://www.transportation.gov/grants/infra-grants-program.
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     National Highway Performance Program (NHPP) \60\--
602(c)(5)(B)(ii) of the Social Security Act--The NHPP provides formula 
funding with the purposes of providing support for the condition and 
performance of the National Highway System (NHS) or for the 
construction of new facilities on the NHS; ensuring that investments of 
Federal-aid funds in highway construction are directed to support 
progress toward the achievement of performance targets established in 
an asset management plan of a state for the NHS; and providing support 
for activities to increase the resiliency of the NHS to mitigate the 
cost of damages from sea level rise, extreme weather events, flooding, 
wildfires, or other natural disasters. For additional information about 
NHPP, see Implementation Guidance for the National Highway Performance 
Program (NHPP) as Revised by the Bipartisan Infrastructure Law.\61\
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    \60\ See 23 U.S.C. 119.
    \61\ U.S. Department of Transportation, Federal Highway 
Administration, Implementation Guidance for the National Highway 
Performance Program (NHPP) as Revised by the Bipartisan 
Infrastructure Law (Jun. 1, 2022), https://www.fhwa.dot.gov/specialfunding/nhpp/bil_nhpp_implementation_guidance-05_25_22.pdf.
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     Bridge Investment Program (BIP) \62\--602(c)(5)(B)(iii) of 
the Social Security Act--The BIP awards competitive discretionary 
grants to improve the safety, efficiency, and reliability of the 
movement of people and freight by funding projects to replace, 
rehabilitate, preserve, or protect bridges in the National Bridge 
Inventory, including projects to replace or rehabilitate bridge-sized 
culverts for the purpose of improving flood control and improved 
habitat connectivity. It has a focus on improving the condition of 
bridges in poor condition and supporting activities to prevent bridges 
in fair condition from dropping to poor condition. For additional 
information on the BIP, see Bridge Investment Program (BIP) Questions 
and Answers (Q&As).\63\
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    \62\ See 23 U.S.C. 124.
    \63\ U.S. Department of Transportation, Federal Highway 
Administration, Bridge Investment Program (BIP) Questions and 
Answers (Q&As) (Aug. 18, 2022), https://www.fhwa.dot.gov/bridge/bip/qa.cfm.

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[[Page 65001]]

     Surface Transportation Block Grant Program (STBG) \64\--
602(c)(5)(B)(iv) of the Social Security Act--The STBG provides flexible 
funding that may be used for projects to preserve and improve the 
conditions and performance on any Federal-aid highway, bridge and 
tunnel projects on any public road, pedestrian and bicycle 
infrastructure, and transit capital projects, including intercity bus 
terminals. For additional information on the STBG, see Implementation 
Guidance for the Surface Transportation Block Grant Program (STBG) as 
Revised by the Bipartisan Infrastructure Law.\65\
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    \64\ See 23 U.S.C. 133.
    \65\ U.S. Department of Transportation, Federal Highway 
Administration, Implementation Guidance for the Surface 
Transportation Block Grant Program (STBG) as Revised by the 
Bipartisan Infrastructure Law (Jun. 1, 2022), https://www.fhwa.dot.gov/specialfunding/stp/bil_stbg_implementation_guidance-05_25_22.pdf.
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     Highway Safety Improvement Program (HSIP) \66\--
602(c)(5)(B)(vi) of the Social Security Act--The HSIP provides formula 
funding with the purpose of helping to achieve a significant reduction 
in traffic fatalities and serious injuries on all public roads, 
including non-state-owned public roads and roads on Tribal land. HSIP 
funds are typically available for defined highway safety improvement 
projects, as well as ``specified safety projects.'' For additional 
information on the HSIP, see the Highway Safety Improvement Program 
(HSIP) Eligibility Guidance.\67\
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    \66\ See 23 U.S.C. 148.
    \67\ U.S. Department of Transportation, Federal Highway 
Administration, Highway Safety Improvement Program (HSIP) 
Eligibility Guidance (Feb. 2, 2022), https://safety.fhwa.dot.gov/hsip/rulemaking/docs/BIL_HSIP_Eligibility_Guidance.pdf.
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     Congestion Mitigation and Air Quality Improvement Program 
(CMAQ) \68\--602(c)(5)(B)(vii) of the Social Security Act--The CMAQ 
provides a flexible funding source for transportation projects and 
programs to help meet the requirements of the Clean Air Act. Funding is 
available to reduce congestion and improve air quality for areas that 
do not meet the National Ambient Air Quality Standards for ozone, 
carbon monoxide, or particulate matter (nonattainment areas) and for 
former nonattainment areas that are now in compliance (maintenance 
areas). A wide range of transportation projects leading to reduction in 
emissions are eligible for support under the CMAQ, including projects 
involving new transit, alternative fuels, shared micro-mobility, 
traffic flow improvements, and demand management. For additional 
information on CMAQ, see the Congestion Mitigation and Air Quality 
(CMAQ) Improvement Program Fact Sheet.\69\
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    \68\ See 23 U.S.C. 149.
    \69\ U.S. Department of Transportation, Federal Highway 
Administration, Congestion Mitigation and Air Quality (CMAQ) 
Improvement Program Fact Sheet (Feb. 8, 2022), https://www.fhwa.dot.gov/bipartisan-infrastructure-law/cmaq.cfm.
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     Charging and Fueling Infrastructure Discretionary Grant 
Program (CFI Program) \70\--602(c)(5)(B)(viii) of the Social Security 
Act--Established in the Bipartisan Infrastructure Law, the CFI Program 
provides competitive grants to strategically deploy publicly accessible 
electric vehicle charging and alternative fueling infrastructure in the 
places people live and work--urban and rural areas alike--in addition 
to along designated Alternative Fuel Corridors. For additional 
information about the CFI Program, see Charging and Fueling 
Infrastructure Grant Program.\71\
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    \70\ See 23 U.S.C. 151(f).
    \71\ U.S. Department of Transportation, Federal Highway 
Administration, Charging and Fueling Infrastructure Grant Program 
(Mar. 30, 2023), https://www.fhwa.dot.gov/environment/cfi/.
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     Territorial and Puerto Rico Highway Program \72\--
602(c)(5)(B)(ix) of the Social Security Act--The Territorial and Puerto 
Rico highway program allocates funds to the Commonwealth of Puerto Rico 
for a highway program, as well as to American Samoa, the Commonwealth 
of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands to 
assist in constructing and improving a system of arterial and collector 
highways and necessary inter-island connectors. For additional 
information on the Territorial and Puerto Rico Highway program, see the 
Territorial and Puerto Rico Highway Program Fact Sheet.\73\
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    \72\ See 23 U.S.C. 165
    \73\ U.S. Department of Transportation, Federal Highway 
Administration, Territorial and Puerto Rico Highway Program Fact 
Sheet (Feb. 24. 2022), https://www.fhwa.dot.gov/bipartisan-infrastructure-law/territorial_puerto_rico_hp_fact_sheet.cfm.
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     National Highway Freight Program (NHFP) \74\--
602(c)(5)(B)(x) of the Social Security Act--The NHFP provides funding 
intended to improve the condition and performance of the National 
Highway Freight Network (NHFN) and support several goals, including:
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    \74\ See 23 U.S.C. 167.
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    [cir] investing in infrastructure and operational improvements that 
strengthen economic competitiveness, reduce congestion, reduce the cost 
of freight transportation, improve reliability, and increase 
productivity;
    [cir] improving the safety, security, efficiency, and resiliency of 
freight transportation in rural and urban areas;
    [cir] improving the state of good repair of the NHFN;
    [cir] using innovation and advanced technology to improve NHFN 
safety, efficiency, and reliability;
    [cir] improving the efficiency and productivity of the NHFN;
    [cir] improving State flexibility to support multi-State corridor 
planning and address highway freight connectivity; and
    [cir] reducing the environmental impacts of freight movement on the 
NHFN.
    For additional information on the NHFP, see Implementation Guidance 
for the National Highway Freight Program as Revised by the Bipartisan 
Infrastructure Law.\75\
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    \75\ U.S. Department of Transportation, Federal Highway 
Administration, Implementation Guidance for the National Highway 
Freight Program as Revised by the Bipartisan Infrastructure Law 
(Dec. 14, 2022), https://ops.fhwa.dot.gov/freight/documents/NHFP_Implementation_Guidance.pdf.
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     Rural Surface Transportation Grant Program \76\--
602(c)(5)(B)(xi) of the Social Security Act--The Rural Surface 
Transportation Grant Program provides competitive grants to support 
projects to improve and expand the surface transportation 
infrastructure in rural areas to increase connectivity, improve the 
safety and reliability of the movement of people and freight, and 
generate regional economic growth and improve quality of life. Grant 
funds typically support highway, bridge, or tunnel projects eligible 
under the NHPP, the STBG program, or the Tribal Transportation Program; 
highway freight projects eligible under the NHFP; highway safety 
improvement projects; projects on a publicly-owned highway or bridge 
improving access to certain facilities that support the economy of a 
rural area; integrated mobility management systems, transportation 
demand management systems, or on-demand mobility services. For 
additional information about the Rural Surface Transportation Grant 
Program, see the Rural Surface Transportation Grant website.\77\
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    \76\ See 23 U.S.C. 173.
    \77\ See the U.S. Department of Transportation's Rural Surface 
Transportation Grant website at https://www.transportation.gov/grants/rural-surface-transportation-grant.
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     Carbon Reduction Program (CRP) \78\--602(c)(5)(B)(xii) of 
the Social Security Act--Established in the Bipartisan Infrastructure 
Law,\79\ CRP provides funds by formula for a wide-range of projects 
designed to reduce transportation emissions, defined as carbon dioxide 
emissions from on-road highway sources. For additional

[[Page 65002]]

information on eligible projects under CRP, see the Carbon Reduction 
Program (CRP) Implementation Guidance.\80\
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    \78\ See 23 U.S.C. 175.
    \79\ Public Law 117-58.
    \80\ U.S. Department of Transportation, Federal Highway 
Administration, Carbon Reduction Program (CRP) Implementation 
Guidance (Apr. 21, 2022), https://www.fhwa.dot.gov/environment/sustainability/energy/policy/crp_guidance.pdf.
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     Promoting Resilient Operations for Transformative, 
Efficient, and Cost-Saving Transportation (PROTECT) \81\--
602(c)(5)(B)(xiii) of the Social Security Act--Established in the 
Bipartisan Infrastructure Law, the PROTECT Program provides both 
formula funding and competitive funding for projects that, among other 
activities, provide resilience improvements; strengthen and protect 
evacuation routes; and protect at-risk coastal infrastructure. For 
additional information on the PROTECT Formula Program, see Promoting 
Resilient Operations for Transformative, Efficient, and Cost-Saving 
Transportation (PROTECT) Formula Program Implementation Guidance.\82\
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    \81\ See 23 U.S.C. 176.
    \82\ U.S. Department of Transportation, Federal Highway 
Administration, Promoting Resilient Operations for Transformative, 
Efficient, and Cost-Saving Transportation (PROTECT) Formula Program 
Implementation Guidance (Jul. 29, 2022), https://www.fhwa.dot.gov/environment/sustainability/resilience/policy_and_guidance/protect_formula.pdf.
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     Tribal Transportation Program (TTP) \83\--
602(c)(5)(B)(xiv) of the Social Security Act--TTP provides formula 
funding to Tribal governments to aid in providing safe and adequate 
transportation and public road access to and within Indian 
reservations, Indian lands, and Alaska Native Village communities, 
contributing to the economic development, self-determination, and 
employment of Indians and Native Americans. TTP funds a wide range of 
eligible transportation activities including the construction and 
maintenance of roads and bridges. For additional information about TTP, 
see Tribal Transportation Program Fact Sheet.\84\
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    \83\ See 23 U.S.C. 202.
    \84\ U.S. Department of Transportation, Federal Highway 
Administration, Tribal Transportation Program Fact Sheet (Oct. 26, 
2022), https://www.fhwa.dot.gov/bipartisan-infrastructure-law/ttp.cfm.
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     Federal Lands Transportation Program (FLTP) \85\--
602(c)(5)(B)(xv) of the Social Security Act--FLTP provides funds to 
improve the transportation infrastructure owned and maintained by 
Federal agencies with land and natural resource management 
responsibilities. Eligible projects under FLTP include construction and 
maintenance of transit facilities and transportation projects eligible 
under Title 23 that are on a public network that provides access to, 
adjacent to, or through Federal lands. For additional information on 
FLTP, see Implementation Guidance for the Federal Lands Transportation 
Program.\86\
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    \85\ See 23 U.S.C. 203.
    \86\ U.S. Department of Transportation, Federal Highway 
Administration, Implementation Guidance for the Federal Lands 
Transportation Program (Jun. 29, 2022), https://highways.dot.gov/sites/fhwa.dot.gov/files/docs/federal-lands/programs/federal-lands-transportation-program/8186/fltp-guidance-cleared.pdf.
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     Federal Lands Access Program (FLAP) \87\--
602(c)(5)(B)(xvi) of the Social Security Act--FLAP provides formula 
funding to improve transportation facilities that provide access to, 
are adjacent to, or are located within Federal lands. FLAP supplements 
state and local resources for public roads, transit systems, and other 
transportation facilities, with an emphasis on high-use recreation 
sites and economic generators. For additional information on FLAP, see 
the Implementation Guidance for the Federal Lands Access Program.\88\
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    \87\ See 23 U.S.C. 204.
    \88\ U.S. Department of Transportation, Federal Highway 
Administration, Implementation Guidance for the Federal Lands Access 
Program (Aug. 6, 2018), https://highways.dot.gov/sites/fhwa.dot.gov/files/docs/federal-lands/programs/federal-lands-access-program/6971/flap-implem-guidance.pdf.
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     Rebuilding American Infrastructure with Sustainability and 
Equity (RAISE) Grant Program--602(c)(5)(B)(xvii) of the Social Security 
Act--The RAISE Grant Program helps communities build transportation 
projects that have significant local or regional impact and improve 
safety and equity. RAISE provides funds through competitive grants to 
state, local, Tribal, and territorial governments, among others, for 
surface transportation capital projects, including highway, bridge, or 
other road projects eligible under title 23 of the U.S. Code; public 
transportation projects eligible under chapter 53 of title 49 of the 
U.S. Code; passenger and freight rail transportation projects; port 
infrastructure investments; the surface transportation components of an 
airport project eligible for assistance under part B of subtitle VII of 
title 49 of the U.S. Code; intermodal projects; projects to replace or 
rehabilitate a culvert or prevent stormwater runoff; projects investing 
in surface transportation facilities that are located on Tribal land; 
and other surface transportation infrastructure projects that the 
Secretary of Transportation considers to be necessary to advance the 
goals of the program--including public road and non-motorized projects 
that are not otherwise eligible under title 23 of the U.S. Code, 
transit-oriented development projects, mobility on-demand projects that 
expand access and reduce transportation cost burden, and intermodal 
projects. The addition of Federal funds, including SLFRF funds, to an 
existing RAISE project is subject to the Department of Transportation's 
approval. For more information on RAISE grants, see Notice of Funding 
Opportunity for the Department of Transportation's National 
Infrastructure Investments (i.e., the Rebuilding American 
Infrastructure with Sustainability and Equity (RAISE) Grant Program) 
under the Infrastructure Investment and Jobs Act (``Bipartisan 
Infrastructure Law''), Amendment No. 2.\89\
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    \89\ U.S. Department of Transportation, Notice of Funding 
Opportunity for the Department of Transportation's National 
Infrastructure Investments (i.e., the Rebuilding American 
Infrastructure with Sustainability and Equity (RAISE) Grant Program) 
under the Infrastructure Investment and Jobs Act (``Bipartisan 
Infrastructure Law''), Amendment No. 2 (Jan. 3, 2023), https://www.transportation.gov/sites/dot.gov/files/2023-02/RAISE%202023%20NOFO%20Amendment2.pdf.
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     Transportation Infrastructure Finance and Innovation Act 
(TIFIA) \90\--602(c)(5)(B)(xviii) of the Social Security Act--The TIFIA 
Program provides Federal credit assistance in the form of direct loans, 
loan guarantees, and standby lines of credit to finance surface 
transportation projects of national and regional significance. Eligible 
projects typically include highways and bridges; intelligent 
transportation systems; intermodal connectors; transit vehicles and 
facilities; intercity buses and facilities; freight transfer 
facilities; pedestrian bicycle infrastructure networks; transit-
oriented development; rural infrastructure projects; passenger rail 
vehicles and facilities; surface transportation elements of port 
projects; and airports that meet certain standards of credit worthiness 
and readiness. For additional information about TIFIA, see TIFIA 
Program Overview.\91\
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    \90\ See 23 U.S.C. Chapter 6.
    \91\ See the U.S. Department of Transportation's TIFIA Program 
Overview website at https://www.transportation.gov/buildamerica/financing/tifia.
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     Urbanized Formula Grants \92\--602(c)(5)(B)(xx) of the 
Social Security Act--The Urbanized Area Formula Funding Program makes 
Federal resources available for transit capital assistance in urbanized 
areas and for transportation-related planning.\93\

[[Page 65003]]

Eligible activities under the Urbanized Formula grants typically 
include: planning, engineering, design, and evaluation of transit 
projects and other technical transportation-related studies; capital 
investments in bus and bus-related activities such as replacement, 
overhaul, and rebuilding of buses, crime prevention and security 
equipment and construction of maintenance and passenger facilities; and 
capital investments in new and existing fixed guideway systems 
including rolling stock, overhaul and rebuilding of vehicles, track, 
signals, communications, and computer hardware and software. In 
addition, associated transit improvements and certain expenses 
associated with mobility management programs are eligible under the 
program. For additional information about Urbanized Formula Grants, see 
Urbanized Area Formula Program Guidance.\94\
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    \92\ See 49 U.S.C. 5307.
    \93\ While Urbanized Area Formula Grants typically may be used 
to support operating expenses, operating expenses are not an 
eligible use of SLFRF spending for projects eligible under section 
602(c)(5)(B)(xx) of the Social Security Act. See operating expenses 
within the Pathway One applicable requirements section for more 
information.
    \94\ U.S. Department of Transportation, Federal Transit 
Administration, Urbanized Area Formula Program Guidance, 79 FR 2930 
(Feb. 27, 2020), https://www.transit.dot.gov/regulations-and-guidance/fta-circulars/urbanized-area-formula-program-program-guidance-and.
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     Fixed Guideway Capital Investment Grants \95\--
602(c)(5)(B)(xxi) of the Social Security Act--The Fixed Guideway 
Capital Investment Grants Program is a discretionary grant program that 
funds transit capital investments, including heavy rail, commuter rail, 
light rail, streetcars, and bus rapid transit. More details are 
available in the Federal Transit Administration's Capital Investment 
Grants Policy Guidance.\96\
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    \95\ See 49 U.S.C. 5309.
    \96\ U.S. Department of Transportation, Federal Transit 
Administration, Capital Investment Grants Policy Guidance (Jan. 12, 
2023), https://www.transit.dot.gov/sites/fta.dot.gov/files/2023-01/CIG-Policy-Guidance-January-2023.pdf.
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     Formula Grants for Rural Areas \97\--602(c)(5)(B)(xxii) of 
the Social Security Act--The Formula Grants for Rural Areas Program 
provides capital and planning assistance to support public 
transportation in rural areas with populations of less than 50,000, 
where many residents often rely on public transit to reach their 
destinations.\98\ The program also provides funding for training and 
technical assistance through the Rural Transportation Assistance 
Program. Eligible activities typically include planning, capital, job 
access and reverse commute projects, and the acquisition of public 
transportation services. For additional information about Formula 
Grants for Rural Areas, see Formula Grants Rural Areas Program 
Guidance.\99\
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    \97\ See 49 U.S.C. 5311.
    \98\ While Rural Area Formula Grants typically may be used to 
support operating expenses, operating expenses are not an eligible 
use of SLFRF spending for projects eligible under section 
602(c)(5)(B)(xxii) of the Social Security Act. See operating 
expenses within the Pathway One applicable requirements section for 
more information.
    \99\ U.S. Department of Transportation, Federal Transit 
Administration, Formula Grants Rural Areas Program Guidance and 
Application Instructions, 79 FR 63663 (Feb. 27, 2020), https://www.transit.dot.gov/regulations-and-guidance/fta-circulars/formula-grants-rural-areas-program-guidance-and-application.
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     State of Good Repair Grants \100\--602(c)(5)(B)(xxiii) of 
the Social Security Act--The State of Good Repair Grants Program 
provides capital assistance for maintenance, replacement, and 
rehabilitation projects of high-intensity fixed guideway and bus 
systems to help transit agencies maintain assets in a state of good 
repair. Capital projects eligible for State of Good Repair Grants funds 
typically include projects to replace and rehabilitate rolling stock; 
track; line equipment and structures; signals and communications; power 
equipment and substations; passenger stations and terminals; security 
equipment and systems; maintenance facilities and equipment; and 
operational support equipment computer hardware and software. For 
additional information about State of Good Repair Grants, see State of 
Good Repair Grant Program Guidance.\101\
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    \100\ See 49 U.S.C. 5337.
    \101\ U.S. Department of Transportation, Federal Transit 
Administration, State of Good Repair Grant Program Guidance and 
Application Instructions (May 29, 2020), https://www.transit.dot.gov/regulations-and-guidance/fta-circulars/state-good-repair-grant-program-guidance-and-application.
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     Grants for Buses and Bus Facilities \102\--
602(c)(5)(B)(xxiv) of the Social Security Act--The Grants for Buses and 
Bus Facilities Program provides funding to help support capital 
projects to replace, rehabilitate, and purchase buses, vans, and 
related equipment, and to construct bus-related facilities, including 
technological changes or innovations to modify low or no emission 
vehicles or facilities. For additional information about Grants for 
Buses and Bus Facilities, see Buses and Bus Facilities Program 
Guidance.\103\
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    \102\ See 49 U.S.C. 5339.
    \103\ U.S. Department of Transportation, Federal Transit 
Administration, Buses and Bus Facilities Program Guidance and 
Application Instructions (Feb. 27, 2020), https://www.transit.dot.gov/regulations-and-guidance/fta-circulars/bus-and-bus-facilities-program-guidance-and-application.
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     National culvert removal, replacement, and restoration 
grant program (Culvert AOP Program) \104\--602(c)(5)(B)(xxv) of the 
Social Security Act--Established by the Bipartisan Infrastructure Law, 
the Culvert AOP Program awards grants for projects for the replacement, 
removal, and repair of culverts or weirs that meaningfully improve or 
restore fish passage for anadromous fish. Anadromous fish species are 
born in freshwater such as streams and rivers, spend most of their 
lives in the marine environment, and migrate back to freshwater to 
spawn. For additional information on the Culvert AOP Program, see the 
National Culvert Removal, Replacement, and Restoration Grants (Culvert 
AOP Program) website.\105\
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    \104\ See 49 U.S.C. 6703.
    \105\ U.S. Department of Transportation, Federal Highway 
Administration, National Culvert Removal, Replacement, & Restoration 
Grants (Culvert Hydraulics Aquatic Organisms Passage Program) 
website Program Overview (Jan. 31, 2023), https://www.fhwa.dot.gov/engineering/hydraulics/culverthyd/aquatic/culvertaop.cfm.
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     Bridge Replacement, Rehabilitation, Preservation, 
Protection, and Construction Program (Bridge Formula Program or BFP) 
\106\--602(c)(5)(B)(xxvii) of the Social Security Act--Established by 
the Bipartisan Infrastructure Law, BFP provides formula funds for 
highway bridge replacement, rehabilitation, preservation, protection, 
and construction projects on public roads. For additional information 
of BFP, see Bridge Formula Program (BFP) Implementation Guidance.\107\
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    \106\ See title VIII of division J of Public Law 117-58.
    \107\ U.S. Department of Transportation, Federal Highway 
Administration, Bridge Formula Program (BFP) Implementation Guidance 
(Jan. 14, 2022), https://www.fhwa.dot.gov/bridge/bfp/20220114.cfm.
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     Additionally, as provided by section 602(c)(5) of the 
Social Security Act, Surface Transportation projects also include 
activities to carry out metropolitan transportation planning \108\ and 
projects that further the completion of a designated route of the 
Appalachian Development Highway System (ADHS) \109\--a system of 
designated corridors and roadways within the 13 States that make up the 
Appalachian Region. With regard to metropolitan transportation 
planning, requirements leading to the development of transportation 
improvement plans are described in section 134 of title 23 of the U.S. 
Code and section 5303 of title 49 of the U.S. Code.
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    \108\ See section 602(c)(5)(B)(v) of the Social Security Act. 
See also 23 U.S.C. 134 for more details.
    \109\ See section 602(c)(5)(B)(xix) of the Social Security Act. 
See also 40 U.S.C. 14501 for more details on the Appalachian 
Development Highway System.
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b. Pathway One: Applicable Requirements
    Recipients using SLFRF funds for Surface Transportation projects 
under Pathway One must comply with certain

[[Page 65004]]

requirements and restrictions established by the 2023 CAA, in addition 
to the other applicable provisions of section 602 and 603 of the Social 
Security Act, the 2022 final rule, and recipients' award terms and 
conditions. As described earlier in this interim final rule, recipients 
may only use the greater of 30% of their award and $10 million (not to 
exceed their total award) for Surface Transportation projects 
(described in this section) and Title I projects (described in the 
following section), taken together. As also described earlier in this 
interim final rule, recipients using SLFRF funds for Surface 
Transportation projects must obligate funds by December 31, 2024, and 
expend funds by September 30, 2026. In the section that follows, this 
interim final rule describes the additional requirements that apply to 
Surface Transportation projects funded with SLFRF funds under Pathway 
One.
    Pathway One: Application of Titles 23, 40, and 49 of the U.S. Code. 
Sections 602(c)(5)(C)(iii) and 603(c)(6)(B)(iii) of the Social Security 
Act provide that the requirements of titles 23, 40, and 49 of the U.S. 
Code apply to Surface Transportation projects, except as otherwise 
determined by the Secretary or the head of a Federal agency to which 
the Secretary has delegated authority. When using SLFRF funds under 
Pathway One, the statutory requirements that normally apply when 
carrying out such projects continue to apply. Recipients should consult 
with DOT before using SLFRF funds for these projects. The 
responsibility for completing or ensuring compliance with all 
requirements falls to the recipient, as would typically be the case for 
a DOT-funded project in the absence of SLFRF funds. Immediately below, 
this interim final rule summarizes some of the requirements that 
generally apply:
     Uniform Relocation Assistance and Real Property 
Acquisition Policies Act of 1970 (Uniform Act) \110\--The Uniform Act 
is a Federal law that establishes minimum standards for Federally 
funded programs and projects that require the acquisition of real 
property or displace persons from their homes, businesses, or farms. 
The Act's protections and assistance apply to the acquisition, 
rehabilitation, or demolition of real property for Federal or Federally 
funded projects. The provisions of the Uniform Act and its implementing 
regulations apply to all activities funded with a recipient's SLFRF 
award, as described in the SLFRF award terms and conditions.
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    \110\ 42 U.S.C. 4601 et seq.
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     Prevailing Wage and Employee Protection Requirements--The 
Surface Transportation projects are generally subject to wage and 
employee protection requirements, including the requirements of 23 
U.S.C. 113 and 49 U.S.C. 5333(a) and (b), applying Davis-Bacon 
prevailing wage protections for highway and transit projects, 
respectively, receiving Federal financial assistance.
     Title VI of the Civil Rights Act of 1964--Title VI of the 
Civil Rights Act of 1964 states that no person in the Unites States 
shall, on the grounds of race, color, or national origin, be excluded 
from participation in, be denied the benefits of, or be otherwise 
subjected to discrimination under any program or activity for which the 
recipient receives Federal assistance. As with all activities funded 
with a recipients' SLFRF award, the requirements of Title VI and 
Treasury's implementing regulations at 31 CFR part 22 apply to SLFRF 
funds used for Surface Transportation projects.
     Buy America Provisions--Buy America requirements were 
established pursuant to section 165 of the Surface Transportation 
Assistance Act of 1982 to ensure that transportation infrastructure 
projects are built with American-made products.\111\ These requirements 
have been implemented by various DOT modes through statute and 
regulation.\112\
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    \111\ See Public Law 97-424, 96 Stat. 2097 (Jan. 6, 1983).
    \112\ See, e.g., 23 U.S.C. 313 (Federal Highway Administration 
Buy America statute); 49 U.S.C. 5323(j) (Federal Transit 
Administration Buy America statute); 49 CFR part 661 (Federal 
Transit Administration Buy America regulation); and 23 CFR 635.410 
(Federal Highway Administration Buy America regulation).
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     Planning Requirements--Generally, projects that are 
eligible for funding under title 23 of the U.S. Code or 49 U.S.C. 
Chapter 53 must meet planning requirements laid out in law or 
regulation, including the requirement that the project be included 
within a Statewide Transportation Improvement Program, which is a 
statewide prioritized listing or program of transportation projects 
covering a period of four years that is consistent with the long-range 
statewide transportation plan, metropolitan transportation plans, and 
relevant Transportation Improvement Program. Recipients using SLFRF 
funds for Surface Transportation projects under Pathway One must 
continue to comply with applicable planning requirements.
    Pathway One: Limitations on Operating Expenses. Sections 602(c)(5) 
and 603(c)(6) of the Social Security Act provide that SLFRF funds may 
not be used for operating expenses of the Surface Transportation 
projects. Specifically, recipients that use SLFRF funds for projects 
eligible under Urbanized Formula Grants, Fixed Guideway Capital 
Investment Grants, Formula Grants for Rural Areas, State of Good Repair 
Grants, or Grants for Buses and Bus Facilities may not use SLFRF funds 
for operating expenses of these projects. DOT typically defines 
operating expenses as those costs necessary to operate and manage a 
public transportation system. Operating expenses usually include costs 
such as driver salaries, the cost of fuel, and the cost of equipment 
and supplies having a useful life of less than one year. For this 
purpose, operating expenses do not include preventive maintenance 
activities. This limitation does not apply to other Surface 
Transportation projects or to other uses of SLFRF funds, including 
under the revenue loss eligible use category.
    Pathway One: Projects that Demonstrate Progress Towards a State of 
Good Repair or Support Achieving Performance Targets. Section 
602(c)(5)(C)(iii)(III) of the Social Security Act provides that, except 
as otherwise determined by the Secretary or the head of the Federal 
agency to which the Secretary has delegated authority, states may use 
funds for Surface Transportation projects, as applicable, that 
demonstrate progress in achieving a state of good repair as required by 
the state's asset management plan under 23 U.S.C. 119(e) and that 
support the achievement of one or more performance targets of the state 
established under 23 U.S.C. 150. Treasury interprets this provision to 
impose a mandatory requirement for states to comply with one of the two 
prongs in section 602(c)(5)(C)(iii)(III). Treasury understands the 
statute's provision that states ``may'' use funds for applicable 
projects that meet this requirement to mean that states may only use 
funds for such projects that meet this requirement, because this 
provision is included in the section titled ``Application of 
Requirements'' alongside two other subparagraphs that impose mandatory 
requirements when recipients use funds on Surface Transportation 
projects and because otherwise, the provision would have no practical 
effect.\113\ But Treasury reads

[[Page 65005]]

the word ``and'' as disjunctive, such that states need only comply with 
either subparagraph (aa) or (bb).\114\ While it may be possible for a 
state to carry out some types of Surface Transportation projects in a 
way that both demonstrates progress in achieving a state of good repair 
as required by the state's asset management plan under 23 U.S.C. 119(e) 
and that supports the achievement of one or more performance targets of 
the state established under 23 U.S.C. 150, Treasury is concerned that 
an interpretation that requires states to meet both criteria would 
effectively read certain programs out of the list of programs that 
Congress specifically provided in section 602(c)(5)(B) of the Social 
Security Act.
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    \113\ To treat the provisions of section 602(c)(5)(C)(iii)(III) 
as completely optional would give these provisions no meaning, 
because states would be permitted to carry out projects in the 
manner contemplated by the provision regardless of whether the 
statute identified this ability or not. Such a reading would render 
the provisions as surplusage. Instead, statutes should be read to 
give effect to all provisions, ``so that no part will be inoperative 
or superfluous.'' See, e.g., Ysleta Del Sur Pueblo v. Texas, 596 
U.S. _, 124 S. Ct. 1929, 1939 (2022) (internal citation omitted).
    \114\ As discussed in United States v. Fisk, 70 U.S. 445, 447 
(1865), it can be necessary ``to construe `or' as meaning `and,' and 
again `and' as meaning `or''' (emphasis omitted). While the word 
``and'' usually is conjunctive and the literal meaning of the words 
``and'' and ``or'' generally should be followed, it may be 
appropriate to interpret ``and'' as disjunctive when the statutory 
meaning is questionable or confusing. See also Singer, Norman J. et 
al., Sutherland Statutes and Statutory Construction Sec.  21:14 (7th 
ed. 2010).
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    This interim final rule provides that only projects eligible under 
title 23 of the U.S. Code, or that otherwise would be subject to the 
requirements of title 23, will be subject to the requirement to either 
demonstrate progress in achieving a state of good repair under 23 
U.S.C. 119(e) or support the achievement of one or more state 
performance targets under 23 U.S.C. 150. Section 602(c)(5)(C)(iii)(III) 
of the Social Security Act provides that this requirement applies to 
Surface Transportation projects ``as applicable,'' and it would not 
make sense for these conditions to apply to projects eligible under 
titles 40 or 49 of the U.S. Code as that would effectively make such 
projects unavailable to states, despite the inclusion of these types of 
projects in section 602(c)(5)(B) of the Social Security Act.
    Pathway One: Application of Non-Federal Cost Share Requirements to 
SLFRF Funds. Generally, the non-Federal cost share provisions 
associated with projects and programs administered by DOT require a 
certain percentage of funds to be contributed from non-Federal sources. 
When other Federal funds are added to a transportation infrastructure 
project, the total amount of Federal funds associated with the project 
increases. In the case of some programs, this addition increases the 
overall amount of funds required from non-Federal sources, as is the 
case with the State of Good Repair Grant Formula Program (49 U.S.C. 
5337(e)), the Railcar Vehicle Replacement Program (49 U.S.C. 5337(f)), 
and Grants for Buses and Bus Facilities Program (49 U.S.C. 5339). In 
the case of other programs, the addition of Federal funds, like SLFRF, 
will not increase the overall amount of funds required from non-Federal 
sources.
    As described above, the requirements of titles 23, 40, and 49 of 
the U.S. Code apply to recipients using SLFRF funds for Surface 
Transportation projects under Pathway One, except as otherwise 
determined by the Secretary. This provision permits Treasury to 
determine not to apply certain requirements of the cross-referenced 
statutes when such requirements would conflict with the existing SLFRF 
framework or otherwise are likely to preclude recipients from to 
exercising the additional authorities provided by the statute. For 
these reasons, recipients using SLFRF funds for Surface Transportation 
projects under Pathway One will not be required to contribute cost-
sharing or matching funds alongside those SLFRF funds. In other words, 
the use of SLFRF funds on its own will not result in the application of 
an additional cost-share requirement beyond the cost-share requirement 
that already applies to DOT grantees carrying out projects with DOT 
funds. This approach is consistent with the way recipients are 
permitted to use SLFRF funds under the 2022 final rule, which does not 
require recipients to provide cost sharing or matching funds in order 
to use their SLFRF funds.\115\ If Treasury were to apply cost-share 
requirements to the SLFRF funds used in Pathway One, on top of the 
cost-share requirements that already apply to the projects as funded by 
DOT, recipients would be required to source additional matching funds 
before being able to carry out a Surface Transportation project, which 
would frustrate the flexibility provided by the statutory framework and 
inhibit SLFRF recipients' ability to use funds already received prior 
to the approaching obligation and expenditure deadlines.
---------------------------------------------------------------------------

    \115\ See section 7 of the SLFRF Award Terms and Conditions.
---------------------------------------------------------------------------

    Because SLFRF funds are Federal funds, using SLFRF funds under 
Pathway One will still impact the cost-share requirements that apply to 
certain Surface Transportation projects due to differences in 
applicable non-Federal cost share requirements across DOT projects and 
programs. In some cases, DOT programs are capped in the amount of 
Federal funds that may be used in a project, regardless of whether 
those funds are provided by DOT or another Federal source. This is 
true, for example, of the State of Good Repair Grant Formula Program 
(49 U.S.C. 5337(e)), the Railcar Vehicle Replacement Program (49 U.S.C. 
5337(f)), and Grants for Buses and Bus Facilities Program (49 U.S.C. 
5339) noted above. In those and other similar scenarios, recipients can 
contribute SLFRF funds up to the maximum Federal funds limit without an 
accompanying increase in non-Federal share, but once that maximum is 
reached, the statutory cost share applicable to the project will apply 
to the SLFRF funds. However, in the case of many other programs, the 
approach described above will provide an avenue for recipients to use 
funds for Surface Transportation projects under Pathway One without 
requiring additional non-Federal share contributions. Recipients using 
SLFRF funds for Surface Transportation projects under Pathway One must 
consult with DOT to determine the applicable non-Federal cost share 
requirements.
    Pathway One: Delegation of Authority. Sections 602(c)(5)(C)(iv) and 
603(c)(6)(B)(iv) of the Social Security Act provide that the Secretary 
may delegate oversight and administration of the requirements 
applicable to Surface Transportation projects to the appropriate 
Federal agency. Given DOT's expertise and experience with oversight and 
administration of their own infrastructure projects, Treasury is 
delegating authority for oversight and administration of Surface 
Transportation projects under Pathway One. As such, recipients 
proposing to spend SLFRF on such projects must follow DOT guidance for 
determining the eligibility of using SLFRF funds for a proposed 
project. Recipients using SLFRF funds for such projects will be 
required to comply with the relevant existing DOT reporting 
requirements associated with an existing Surface Transportation project 
that is receiving DOT funds. Recipients using SLFRF funds under Pathway 
One will also be required to report certain information to Treasury, 
including, among other things, the amount of SLFRF funds directed 
toward Surface Transportation projects and Title I projects to ensure 
that recipients comply with the cap on funds associated with these 
eligible use categories. See the section titled Reporting for 
additional information. Treasury and DOT will work together to issue 
guidance to provide recipients additional clarity on how the delegation

[[Page 65006]]

of oversight and administration will apply to Pathway One projects.
c. Pathway Two: Surface Transportation Projects Not Receiving Funding 
From DOT
    This section describes Pathway Two, through which recipients may 
use SLFRF funds for Surface Transportation projects that are not 
receiving funding from DOT, whether or not SLFRF funds are blended with 
other sources of funds. This second pathway is available to all SLFRF 
recipients, including those that do not routinely apply for or receive 
funding directly from DOT.
    In this interim final rule, Treasury is articulating a streamlined 
framework under Pathway Two for recipients to undertake certain 
projects that are expected to pose less financial, compliance, and 
environmental risk. In this streamlined framework, Treasury has 
determined not to require recipients to submit an application to, or 
receive approval from, Treasury to conduct a project that meets certain 
criteria, as discussed further below.
    To pursue projects outside the thresholds described in the 
streamlined framework, recipients must submit a notice of intent to 
Treasury through the process described further below. Treasury will 
evaluate the projects included in these notices of intent, along with 
comments to this interim final rule, to design and implement the 
framework for approving these projects. For information, refer to the 
section titled Pathway Two: Notice of Intent for Projects Outside 
Streamlined Framework.
    As summarized earlier, Treasury has determined to adopt a 
streamlined approach for projects that qualify for the RAISE grant 
program and that meet criteria that indicate lower risk. Projects 
eligible under the DOT RAISE program are among the types of projects 
added by the 2023 CAA as eligible uses of SLFRF. Under the RAISE 
program, as detailed in the RAISE Notice of Funding Opportunity, 
recipients must submit applications to DOT and receive approval from 
DOT for their proposed projects.
    In this streamlined approach, Treasury has determined not to 
require recipients to submit an application to, or receive approval 
from, Treasury to conduct a project that would be eligible under the 
RAISE grant program and meets the other criteria applicable to the 
streamlined framework, as would normally be required when DOT 
administers the program pursuant to the RAISE Notice of Funding 
Opportunity. Depending on the nature of the project, a recipient may 
nevertheless be required to obtain approval pursuant to a specific 
requirement under titles 23, 40 or 49 or the regulations adopted by DOT 
thereunder. For example, a project that involves new construction, 
reconstruction, resurfacing (except for maintenance resurfacing), 
restoration, or rehabilitation of a national highway must meet the 
design standards approved by DOT; if the recipient wishes to vary from 
these standards, it must apply to DOT for an exception.\116\
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    \116\ See 23 CFR part 625.
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    The eligibility of projects under the RAISE program is described in 
the ``Notice of Funding Opportunity for the Department of 
Transportation's National Infrastructure Investments (i.e., the 
Rebuilding American Infrastructure with Sustainability and Equity 
(RAISE) Grant Program) under the Infrastructure Investment and Jobs Act 
(``Bipartisan Infrastructure Law''), Amendment No. 2'' (2023 RAISE 
Grant NOFO) under ``3. Other'' in ``C. Eligibility Information.'' \117\ 
These projects include highway, bridge, or other road projects eligible 
under title 23 of the U.S. Code; public transportation projects 
eligible under chapter 53 of title 49 of the U.S. Code; passenger and 
freight rail transportation projects; port infrastructure investments; 
the surface transportation components of an airport project eligible 
for assistance under part B of subtitle VII of title 49 of the U.S. 
Code; intermodal projects; projects to replace or rehabilitate a 
culvert or prevent stormwater runoff; projects investing in surface 
transportation facilities that are located on Tribal land; and other 
surface transportation infrastructure projects that the Secretary of 
Transportation considers to be necessary to advance the goals of the 
RAISE program--including public road and non-motorized projects that 
are not otherwise eligible under title 23 of the U.S. Code, transit-
oriented development projects, mobility on-demand projects that expand 
access and reduce transportation cost burden, and intermodal projects.
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    \117\ U.S. Department of Transportation, FY 2023 RAISE Grants 
Notice of Funding Opportunity, https://www.transportation.gov/sites/dot.gov/files/2023-02/RAISE%202023%20NOFO%20Amendment2.pdf.
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    For a RAISE-eligible project to qualify for the streamlined 
approach, it must satisfy the following criteria:
     Contribute no more than $10 million in SLFRF funds. The 
recipient's contribution of SLFRF funding to the project under Pathway 
Two must not exceed $10 million.
     Limited to activities that typically do not have a 
significant environmental impact. The entire project scope must be 
limited to the set of actions or activities identified by DOT as 
meeting the criteria for categorical exclusion as listed under 23 CFR 
771.116(c)(1)-(22), 771.117(c)(1)-(30), and 771.118(c)(1)-(16). The 
recipient also must determine that those actions do not involve unusual 
circumstances, as described in 23 CFR 771.116(b), 771.117(b), and 
771.118(b). Such unusual circumstances include significant 
environmental impacts; substantial controversy on environmental 
grounds; significant impact on properties protected by section 4(f) of 
the Department of Transportation Act of 1966 \118\ or section 106 of 
the National Historic Preservation Act (NHPA); \119\ or inconsistencies 
with any Federal, state, or local law, requirement, or administrative 
determination relating to the environmental aspects of the action. In 
considering whether the effects of a proposed action are significant, 
recipients should analyze the potentially affected environment and 
degree of the effects of the action consistent with how a Federal 
agency would analyze it, as described in 40 CFR 1501.3(b). For example, 
an action may be significant if--in the short-term or the long-term and 
either individually or cumulatively--it greatly alters or impacts 
planned growth or land use for the area; requires the relocation of 
large numbers of people; has a strong effect on any natural, cultural, 
recreational, historic, or other resource; significantly impacts air, 
noise, or water quality; greatly affects travel patterns; or has some 
other form of environmental impact that is significant.
---------------------------------------------------------------------------

    \118\ See 23 U.S.C. 138.
    \119\ See 54 U.S.C. 306108.
---------------------------------------------------------------------------

    Without the streamlined framework, recipients likely would not be 
able to engage within required timelines in the types of projects that 
Congress has authorized.\120\ As approximately 30,000 SLFRF recipients 
could seek to use funds for hundreds of Surface Transportation projects 
under Pathway Two, application of the statutory and regulatory approval 
requirements to such a volume of projects likely would preclude 
recipients from carrying out such projects while meeting the statutory 
deadlines for obligation and expenditure of funds. By contrast, 
Treasury expects far fewer recipients to seek to use SLFRF funds for 
higher-risk projects involving greater complexity, given the 
approaching obligation deadline of December 31, 2024. The

[[Page 65007]]

approval requirements apply to Surface Transportation projects that do 
not meet the above streamlined framework criteria, and Treasury will 
design a process for recipients seeking to finance larger projects, 
based in part on the comments to this interim final rule, as discussed 
further below.
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    \120\ Although Treasury is only adopting the streamlined 
approach for projects eligible for the RAISE program, as discussed 
above, this program includes most eligible types of projects.
---------------------------------------------------------------------------

    Recipients using SLFRF funds for an eligible project under Pathway 
Two must maintain records to support their determination that the 
project meets the relevant requirements and the criteria described 
above, including qualifying as an ``eligible project'' under the RAISE 
grant program, not exceeding $10 million in SLFRF funds, and being 
limited to activities that typically do not have a significant 
environmental impact as outlined above. Recipients should be prepared 
to attest to having completed these determinations as part of their 
ongoing reporting to Treasury. Treasury will amend its reporting 
guidance to provide reporting requirements applicable to projects 
conducted under Pathway Two.
    Treasury aligned the streamlined framework for projects under 
Pathway Two with the projects available under the RAISE grant program 
because these projects substantially overlap with the projects 
available under the other programs referenced in section 602(c)(5)(B) 
of the Social Security Act. Furthermore, the RAISE program's 
availability on a competitive basis to most SLFRF recipients means that 
the program and its requirements are already familiar to many 
recipients, enabling them to quickly and clearly assess the eligibility 
of a proposed project and meet the obligation and expenditure 
deadlines.
    Based on Treasury's initial conversations with DOT and stakeholders 
with an interest in Surface Transportation projects, it is Treasury's 
expectation that compliance with the streamlined framework will 
substantially address the risks and policy concerns associated with 
projects that the requirement to submit an application for DOT approval 
under the RAISE program is meant to address.
    The requirement to obtain DOT approval allows DOT to assess whether 
the project meets eligibility requirements, whether a recipient has the 
financial and technical capability to design and carry out the project, 
whether the recipient has received required permits and will comply 
with applicable law, and how the project will impact the 
environment.\121\ Environmental risk is addressed by the requirement to 
qualify for one of the NEPA categorical exclusions, absent any unusual 
circumstances, which is cross-referenced in the third criterion. 
Categorical exclusions (absent unusual circumstances) represent the 
class of actions that DOT has determined, after review by the Council 
on Environmental Quality, do not typically individually or cumulatively 
have a significant effect on the human environment and for which, 
therefore, neither an environmental assessment nor an environmental 
impact statement is normally required under DOT's environmental review 
process.\122\ Further, the risk of a project being ineligible for a 
specific DOT program is less of a concern under Pathway Two than it 
would be under certain specific DOT programs, given that the scope of 
eligible projects as added by the 2023 CAA is so wide. There is 
generally less risk of a recipient not having the financial or 
technical capabilities to complete a project in the case of a project 
that would meet the $10 million threshold.
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    \121\ Given that RAISE is a competitive grant program, the 
approval process also involves the selection of the most meritorious 
projects, but this objective is not relevant to the SLFRF program, 
under which recipients are provided funds by Treasury in advance for 
projects of their own choosing.
    \122\ See 23 CFR 771.116, 771.117, and 771.118.
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    As noted above, projects eligible under the RAISE grant program 
substantially overlap with the projects available under the other 
programs referenced in section 602(c)(5)(B) of the Social Security Act, 
and the program is available on a competitive basis to most SLFRF 
recipients. These projects, therefore, represent the types of projects 
that SLFRF recipients may be expected to undertake under Pathway Two, 
and Treasury qualitatively reviewed recent RAISE grants as well as 
earlier grants awarded through the similar TIGER and BUILD programs, 
covering fiscal years 2012 through 2022, to develop a better 
understanding of the types of projects that recipients may choose to 
undertake.\123\ Treasury observed that projects funded by these grants 
generally present reduced financial complexity and compliance risk and 
are narrower in scope. Adjusted for inflation, applicants awarded less 
than $10 million in TIGER, BUILD, or RAISE grant funding have generally 
carried out a wide range of projects including: road repairs, sidewalk 
installment and replacement, bike and pedestrian trails, pedestrian 
bridges, replacement of existing vehicle bridges, intermodal or 
transit-oriented infrastructure build-outs, marine facility 
investments, and railway repairs and expansion. These projects were 
generally focused on maintenance or upgrades of existing infrastructure 
and thus were significantly less likely to expand the overall footprint 
of surface transportation projects. This suggests that these types of 
projects tend to carry fewer complexities and are the types of Surface 
Transportation projects with which nearly all SLFRF recipients are 
familiar as part of the normal course of maintaining surface 
transportation in their respective geographic areas.
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    \123\ The TIGER, BUILD, and RAISE grant programs are 
discretionary grants awarded by DOT to fund road, rail, transit, and 
port projects that promise to achieve national objectives. The 
programs have different names but share similar goals and 
eligibility requirements. The names reflect the changing priorities 
and themes of the DOT over time. The programs were first created in 
2009 as part of the American Recovery and Reinvestment Act of 2009 
and have since funded hundreds of projects in all 50 states, the 
District of Columbia, and Puerto Rico.
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    Approximately half of TIGER, BUILD, and RAISE awards under $10 
million fund transportation infrastructure; the other half are planning 
or research grants. Treasury observed in its review that nearly 80% of 
the transportation infrastructure awards under $10 million did not 
meaningfully expand the footprint of existing infrastructure. 
Furthermore, of the awards that may have required a footprint 
expansion, nearly half of those awards were for bike and pedestrian 
trails and bridges, which are expected to be less environmentally 
impactful, time intensive, and complex than new roads, vehicle bridges, 
rail lines, or multimodal infrastructure. Based on this analysis, 
nearly 90% of awards did not require an expansion of the footprint of a 
project and over 75% of projects were maintenance or upgrade oriented. 
When reviewing awards above $10 million, Treasury found increasing 
complexity among awards that was not present in significant numbers 
below the $10 million threshold. This complexity involved awards that 
crossed multi-jurisdictional boundaries or significantly expanded the 
footprint, such as bridge reconstruction and widening over a major 
river between two states and a project for a multimodal transportation 
center.
    Although compliance with the streamlined framework criteria does 
not alone address these risks as fully as agency review of the project 
would, Treasury believes it reasonable to permit projects funded with 
$10 million or less in SLFRF funds and that fit within the DOT NEPA 
categorical exclusions to go forward without the application of 
approval requirements to enable recipients to successfully pursue these 
projects within the time remaining in the program.
    Pathway Two: Notice of Intent for Projects Outside Streamlined

[[Page 65008]]

Framework. As described earlier, Treasury recognizes that recipients 
may want to use SLFRF funds (without any funding from DOT) to pursue 
projects that do not meet the three criteria for the streamlined 
framework described above (i.e., a project not eligible under the RAISE 
program, a project above the $10 million threshold, or a project 
including activities that do not fall within the categorical 
exclusions). To do so, recipients must submit a notice of intent to 
Treasury. The notice of intent must be submitted to [email protected] and is due by December 20, 2023. Ideally, the notice 
of intent will provide the following information:
     Project description, including description of how the 
project meets the applicable requirements under the relevant Surface 
Transportation program;
     Dollar value of SLFRF-financed portion of the project, 
including confirmation that the SLFRF-funded portion will not exceed 
the greater of $10 million or 30% of the recipient's total SLFRF award;
     Total expected project cost;
     Presence of other Federal funding;
     Status of NEPA review;
     Recipients' plans to source the project in accordance with 
the Buy America requirements set forth in titles 23, 40, and 49 of the 
U.S. Code, as applicable;
     Brief assessment of project readiness, including 
recipient's assessment of its ability to obligate and expend funds for 
the SLFRF-financed portion of the project in accordance with the 
December 31, 2024 obligation deadline and September 30, 2026, 
expenditure deadline; and
     Brief assessment of recipient's institutional, managerial, 
and financial capability to ensure proper planning, management, and 
completion of the project.
    Treasury will evaluate the projects included in these notices of 
intent, along with comments to this interim final rule, to design and 
implement a framework for approving these projects.
d. Pathway Two: Applicable Requirements
    Recipients using SLFRF funds under Pathway Two must comply with 
certain requirements and restrictions. These requirements and 
restrictions are in addition to the eligibility criteria applicable to 
the streamlined Pathway Two framework discussed above. As described 
earlier in this interim final rule, recipients may only use the greater 
of 30% of their award and $10 million (not to exceed their award) for 
Surface Transportation projects (described in this section) and Title I 
projects (described in the following section), taken together. For 
example, an SLFRF recipient with an allocation of $20 million would 
have $10 million (as $10 million is greater than 30% of the allocation, 
or $6 million) to direct to Surface Transportation projects and Title I 
projects. If this recipient chose to expend $10 million toward a 
Surface Transportation project under the streamlined framework in 
Pathway Two, it would have expended the full amount of SLFRF funds 
available under the cap and would not be able to pursue any additional 
Surface Transportation projects or any Title I projects. Recipients 
using SLFRF funds under Pathway Two must also comply with the 
requirement that SLFRF funds supplement and not supplant other funds, 
described earlier in this interim final rule. Also as described earlier 
in this interim final rule, for Surface Transportation projects, 
recipients must obligate funds by December 31, 2024, and expend funds 
by September 30, 2026. In the section that follows, this interim final 
rule describes how the requirements of NEPA and titles 23, 40, and 49 
of the U.S. Code apply to SLFRF funds used for Surface Transportation 
projects under Pathway Two.
    Pathway Two: NEPA. As described above, recipients using funds for 
Surface Transportation projects that qualify for the streamlined 
framework under Pathway Two, and that are therefore not subject to 
approval requirements, are not required to conduct NEPA environmental 
reviews. Recipients are reminded, however, that projects supported with 
payments from SLFRF may still be subject to NEPA review and other 
environmental statutes such as section 106 of the NHPA that impose 
conditions on a Federal agency's approval of a project if they are also 
funded by other Federal financial assistance programs or have certain 
Federal licensing or registration requirements. In addition, a project 
that qualifies for the streamlined framework may still be subject to 
limitations or prohibitions as a result of the application of other 
environmental statutes.
    For projects under Pathway Two outside of the streamlined 
framework, recipients must submit a notice of intent as outlined above, 
and the requirements of NEPA and other environmental laws, such as 
section 106 of the NHPA, that impose limits on a Federal agency's 
approval of a project, apply to these Surface Transportation projects. 
Treasury will provide additional information about the application and 
administration of environmental requirements to projects under Pathway 
Two not qualifying for the streamlined framework at a later date, 
following review of the comments to this interim final rule and the 
notices of intent submitted by recipients.
    Pathway Two: Application of Titles 23, 40, and 49 of the U.S. Code. 
The 2023 CAA provides that, except as otherwise determined by the 
Secretary, the requirements of titles 23, 40, and 49 of the U.S. Code 
apply to SLFRF funds used for Surface Transportation projects. 
Generally, the requirements provided within the following sections of 
titles 23, 40, and 49 apply to recipients' use of SLFRF funds under 
Pathway Two, because these sections govern the types of Surface 
Transportation projects that recipients may undertake pursuant to the 
2023 CAA:

 Title 23: All parts of title 23
 Title 40: Chapters 141 and 145
 Title 49: Chapters 53, 55, 67, 471, and subtitle V

    More specifically, applicable provisions include those relating to 
the following requirements:
     Underlying project requirements. For example, if a 
recipient intends to use SLFRF funds under Pathway Two for an INFRA 
project that would be eligible under title 23 (as contemplated by the 
RAISE program), then in addition to complying with the requirements 
established in the RAISE NOFO, the recipient must also comply with the 
project eligibility and execution requirements that govern the INFRA 
program, set forth at 23 U.S.C. 117.
     Design, planning, construction, operation, maintenance, 
vehicle weight limit, and toll requirements with respect to particular 
projects. For a discussion of planning requirements specifically 
related to STIPs and TIPs, please see below.
     Location requirements for particular projects. For 
example, pursuant to 23 U.S.C. 133(c), recipients of the Surface 
Transportation Block Grant program may not undertake a project on a 
road functionally classified as a local road or a rural minor collector 
unless the road was on a Federal-aid highway system on January 1, 1991, 
subject to certain exceptions. Recipients using SLFRF funds for 
projects pursuant to sections 602(c)(5)(B)(iv) and 603(c)(6)(A) of the 
Social Security Act as added by the 2023 CAA, which provided that 
projects eligible under the Surface Transportation Block Grant program 
are eligible uses of the SLFRF, must comply with the location 
requirements of 23 U.S.C. 133(c) with respect to such projects. 
Recipients seeking to use funds

[[Page 65009]]

under the streamlined framework under Pathway Two are reminded that the 
``public road and nonmotorized projects not otherwise eligible under 
title 23'' prong of the 2023 RAISE NOFO would include local road 
projects.
     Project approval requirements. The approval requirements 
of titles 23, 40, and 49 of the U.S. Code apply to Pathway Two projects 
other than those that qualify for the streamlined framework described 
above. Treasury has determined not to require recipients to submit an 
application to, or receive approval from, Treasury to conduct a project 
that would be eligible under the RAISE grant program and meets the 
criteria of the streamlined framework of Pathway Two. As discussed 
above, depending on the nature of the project, a recipient may 
nevertheless be required to obtain approval pursuant to a specific 
requirement under titles 23, 40 or 49 or the regulations adopted by DOT 
thereunder.
     Procurement requirements. For example, the requirements of 
23 U.S.C. 112 generally apply. Please see discussion below in the 
section titled Pathway Two: Buy America Requirements for a discussion 
of the specific applicability of Buy American requirements under 23 
U.S.C. 313 and the Infrastructure Investment and Jobs Act.
     Wage and labor requirements. For example, the requirements 
of 23 U.S.C. 113, imposing Davis-Bacon prevailing wage protections for 
highway projects, apply.
     Compliance requirements. Compliance provisions apply to 
the extent that they require recipients to establish and maintain 
measures to oversee the eligible projects that they are undertaking.
     Definitions of terms used in the provisions above.
    In addition, the RAISE program includes eligibility for projects 
with applicable requirements that are found outside of titles 23, 40, 
and 49. If a recipient would like to use SLFRF funds for a project 
eligible under the RAISE program but governed by laws outside titles 
23, 40, and 49, the general principles described above for titles 23, 
40, and 49 will apply, and recipients may ask Treasury for more detail 
about the specific requirements that apply to the particular project.
    Recipients using SLFRF funds for Surface Transportation projects 
under Pathway Two must meet the relevant requirements outlined above, 
which will depend on the project type and whether the project 
ordinarily would be overseen by the Federal Highway Administration 
(FHWA), Federal Transit Administration (FTA), Federal Railroad 
Administration (FRA), or other relevant DOT administrations. For 
example, for projects that ordinarily would be overseen by FHWA, 
applicable Federal laws include those set forth in title 23 of the U.S. 
Code, chapters 141 and 145 of title 40 of the U.S. Code (if undertaking 
a project related to the completion of a designated route of the 
Appalachian Development Highway System), chapter 67 of title 49 of the 
U.S. Code (if undertaking a project related to national culvert 
removal, replacement, or restoration), and applicable regulations.\124\ 
For projects that ordinarily would be overseen by the FTA, applicable 
Federal laws include the requirements of chapters 53, 55, and 67 of 
title 49 of the U.S. Code and chapter VI of title 49 of the Code of 
Federal Regulations. For projects that ordinarily would be overseen by 
the FRA, applicable Federal laws include those described in chapters 55 
and 67 and subtitle V of title 49 of the U.S. Code.
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    \124\ For an illustrative list of the other applicable laws, 
rules, regulations, executive orders, polices, guidelines, and 
requirements as they relate to a RAISE grant project overseen by the 
FHWA, see https://www.transportation.gov/grants/raise/raise-fy2022-fhwa-exhibits-october-18-2022.
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    Restrictions that apply to projects regardless of the source of 
funds of the project apply as they would to any other project carried 
out by a recipient. For example, the design and construction standards 
set forth in 23 CFR part 625 apply to construction, reconstruction, 
resurfacing (except for maintenance resurfacing), restoration, or 
rehabilitation of a highway that is part of the national highway 
system, regardless of what funds are used for such activities.\125\ For 
all of the requirements under titles 23, 40, and 49 that apply to 
recipients' use of funds to undertake projects under this framework, 
the associated DOT regulations also apply, unless Treasury states 
otherwise.\126\
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    \125\ See 23 CFR 625.3(d). Application of these requirements to 
projects funded under the SLFRF includes the provision for 
determinations by the Division Administrator in certain instances as 
provided for by 23 CFR 625.3(e).
    \126\ The 2023 CAA provides that the requirements of titles 23, 
40, and 49 of the U.S. Code apply to funds used for Surface 
Transportation projects, except as otherwise determined by the 
Secretary. Treasury is also applying the associated regulations 
because they generally inform and provide context for how to apply 
with the requirements set forth in the statute.
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    Pathway Two: Inapplicable requirements of title 23, 40, and 49 of 
the U.S. Code. The Secretary has determined that certain sections of 
the relevant chapters of titles 23, 40, and 49 of the U.S. Code do not 
apply to recipients' use of SLFRF funds for Surface Transportation 
projects under Pathway Two when such requirements would conflict with 
the existing SLFRF framework or otherwise are likely to preclude 
recipients from exercising the additional authorities provided by the 
statute. For these reasons, the following types of provisions generally 
do not apply:
     Grant size requirements. Limitations on the size of grants 
that DOT can award to grantees do not apply to SLFRF recipients using 
funds to carry out Surface Transportation projects. For example, under 
the Rural Surface Transportation Grant Program, DOT generally may only 
award grants in amounts not less than $25 million.\127\ SLFRF 
recipients are not subject to this funding minimum when using SLFRF 
funds for projects eligible under the Rural Surface Transportation 
Grant Program. These limitations conflict with the SLFRF statutory 
framework and are likely to preclude recipients from exercising the 
additional authorities provided by the statute: they apply by their 
terms to DOT rather than to recipients, and recipients have already 
received their SLFRF payments from Treasury. Instead, recipients are 
subject to the aggregate limit on the use of SLFRF for Surface 
Transportation projects and Title I projects discussed above. 
Recipients wishing to use the streamlined framework for a particular 
project are also limited to using $10 million of the SLFRF for such 
project.
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    \127\ See 23 U.S.C. 173(i).
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     Allocation requirements that require states to distribute 
funds received under certain programs to their local governments or to 
spend funds received under certain programs for the benefit of 
particular areas. Treasury has determined for example, that the 
requirements of 23 U.S.C. 133(h) are not applicable to the SLFRF 
program, as they conflict with the SLFRF statutory framework and are 
likely to preclude certain recipients from exercising the additional 
authorities provided by the statute. The 2023 CAA amendments make clear 
that SLFRF recipients are permitted to use funds for projects carried 
out by the recipient itself. Furthermore, all SLFRF recipients are 
eligible to use their funds for Surface Transportation projects, so it 
is unnecessary to require states to further distribute amounts for the 
specific benefit of their localities that may not receive DOT funding 
directly. Finally, even if Treasury were to apply these allocation 
requirements to the SLFRF program, a state that wanted to use

[[Page 65010]]

SLFRF funds for a project eligible under a program subject to an 
allocation requirement could in most if not all cases avoid the 
requirement by citing a different program without an allocation 
requirement as the authority for its uses of funds.
     Non-Federal cost-share requirements. As discussed under 
Pathway One, titles 23, 40, and 49 include cost-share requirements that 
generally apply to projects under transportation programs. However, 
recipients using SLFRF funds for Surface Transportation projects under 
Pathway Two are not required to contribute cost-sharing or matching 
funds alongside those SLFRF funds. This approach is consistent with the 
way recipients spend SLFRF funds under the 2022 final rule, which does 
not require recipients to provide cost sharing or matching funds in 
order to use their SLFRF funds.\128\ If Treasury were to apply cost-
share requirements to the SLFRF funds used in Pathway Two, recipients 
would be required to source additional matching funds before being able 
to carry out a Surface Transportation project, which would frustrate 
the flexibility provided by the 2023 CAA and inhibit recipients' 
ability to use funds already received prior to the approaching 
obligation and expenditure deadlines.
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    \128\ See section 7 of the SLFRF Award Terms and Conditions.
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     Reporting requirements that would normally apply when DOT 
provides funding for a project. SLFRF recipients generally are not 
required to report their use of SLFRF funds for a project under Pathway 
Two to DOT or any other agency other than Treasury. Instead, recipients 
are required to provide a detailed accounting of their uses of funds 
and report such information as Treasury shall require pursuant to 
section 602(d)(2) and 603(d). Treasury will amend its reporting 
guidance to provide reporting requirements applicable to projects 
conducted under Pathway Two.
    Pathway Two: STIP and TIP. The statutory provisions of titles 23, 
40, and 49 related to STIP and TIP inclusion, generally do not apply to 
SLFRF funds used for Surface Transportation projects under Pathway Two. 
Typically, applicants for RAISE funding need to demonstrate that a 
project that is required to be included in the relevant state, 
metropolitan, and local planning documents has been or will be included 
in such documents. Such local planning documents include the STIP or 
TIP. This requirement for inclusion in planning documents provides 
useful context on how specific projects fit within broader 
transportation investments. The requirement that certain projects be 
addressed in these planning documents, however, is inconsistent with 
the 2023 CAA amendments' provision of authority to local governments 
themselves to undertake Surface Transportation projects with funds on 
hand rather than through funding overseen by state or regional entities 
and therefore would likely preclude certain recipients from exercising 
the additional authorities provided by the statute. Accordingly, these 
planning requirements do not apply to recipients' use of SLFRF funds 
for Surface Transportation projects under Pathway Two.
    However, as discussed above, requirements that apply to projects 
regardless of the source of funds of the project apply as they would to 
any other project carried out by a recipient. Pursuant to 23 CFR 
450.218(h), a STIP must contain all regionally significant projects 
requiring an action by the FHWA or FTA despite source of funds, and 
must also contain (if appropriate and included in any TIPs), all 
regionally significant projects proposed to be funded with Federal 
funds, among others. \129\ For this reason, if a project receiving 
SLFRF funds under this framework is regionally significant and requires 
an action by the FHWA or the FTA, it will still be required to be 
included in the STIP or TIP. If a project receiving SLFRF funds under 
this framework is included in a TIP, for informational and conformity 
purposes, it also may be required to be included in the STIP.
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    \129\ ``Regionally significant project'' is defined in 23 CFR 
450.104 to mean ``a transportation project . . . that is on a 
facility that serves regional transportation needs (such as access 
to and from the area outside the region; major activity centers in 
the region; major planned developments such as new retail malls, 
sports complexes, or employment centers; or transportation 
terminals) and would normally be included in the modeling of the 
metropolitan area's transportation network. At a minimum, this 
includes all principal arterial highways and all fixed guideway 
transit facilities that offer an alternative to regional highway 
travel.''
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    Pathway Two: Buy America Requirements. Under titles 23 and 49 of 
the U.S. Code, programs overseen by the FHWA, FTA, and FRA are subject 
to Buy America domestic content procurement preference provisions 
related to steel, iron, and manufactured goods. These Buy America 
provisions provide that DOT shall not obligate funds to carry out 
projects under titles 23 and 49 unless steel, iron, and manufactured 
products used in such project are produced in the United States.\130\ 
Recipients generally must satisfy the Buy America requirements of 
titles 23, 40, and 49 of the U.S. Code when funds are used on Surface 
Transportation projects under Pathway Two. However, recipients are not 
required to satisfy the Buy America requirements in the case of Surface 
Transportation projects meeting the criteria for streamlined projects 
under Pathway Two that result in lower-risk uses of funds. Treasury 
expects that recipients may seek to use funds for hundreds of lower-
risk projects, and application of the Buy America requirements to such 
a volume of projects likely would preclude recipients from carrying out 
such projects while meeting the statutory deadlines for obligation and 
expenditure of funds. Treasury expects that developing the recipient 
compliance process and addressing requests for waivers for potentially 
hundreds of lower-risk projects in time for recipients to carry out 
such projects while meeting the statutory deadlines for obligation and 
expenditure of funds could inhibit recipients' ability to use SLFRF 
funds in the time remaining in the program in line with the flexibility 
provided by the statutory framework. By contrast, Treasury expects far 
fewer recipients to seek to use SLFRF funds for higher-risk projects 
involving greater complexity, in light of the approaching obligation 
deadline of December 31, 2024, and expenditure deadline of September 
30, 2026. The Buy America requirements apply to Surface Transportation 
projects that do not meet the criteria, and Treasury will work with 
recipients seeking to fund projects outside of the streamlined 
framework, as discussed further above.
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    \130\ See 23 U.S.C. 313 for FHWA, 49 U.S.C. 5323 for FTA, and 49 
U.S.C. 22905(a) and 49 U.S.C. 24395 for FRA.
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    Pathway Two: Projects that demonstrate progress towards a state of 
good repair or support achieving performance targets. Consistent with 
the requirements applicable to Pathway One, states using SLFRF funds 
under Pathway Two for Surface Transportation projects eligible under 
title 23 of the U.S. Code, or that otherwise would be subject to the 
requirements of title 23, must either demonstrate progress in achieving 
a state of good repair or support the achievement of one or more 
performance targets. This requirement would not apply when states use 
SLFRF funds for Surface Transportation projects eligible under programs 
authorized by laws outside of title 23 of the U.S. Code, for the 
reasons discussed above.

[[Page 65011]]

    Pathway Two: Limitations on Operating Expenses. Consistent with the 
requirements described in Pathway One, recipients may not use SLFRF 
funds under this pathway for operating expenses in projects that would 
be eligible under Urbanized Formula Grants, Fixed Guideway Capital 
Investment Grants, Formula Grants for Rural Areas, State of Good Repair 
Grants, or Grants for Buses and Bus Facilities. For this purpose, 
operating expenses do not include preventive maintenance activities. 
Public transportation projects eligible under chapter 53 of title 49 of 
the U.S. Code are eligible projects under the RAISE grant program and 
therefore are available for SLFRF recipients to pursue under Pathway 
Two, pursuant to other requirements as outlined above. Given the 
statutory limitation on using SLFRF funds for operating expenses on 
projects eligible under the above-mentioned programs, such limits also 
apply to projects eligible under the programs with statutory 
limitations on using SLFRF funds for operating expenses that recipients 
may pursue under Pathway Two. This limitation does not apply to other 
Surface Transportation projects under Pathway Two or to other uses of 
SLFRF funds, including under the revenue loss eligible use category.
e. Pathway Three: Non-Federal Share Requirements for Certain Surface 
Transportation Projects
    This section discusses the third pathway for using SLFRF funds for 
Surface Transportation projects. Sections 602(c)(5)(A) and 603(c)(6)(A) 
of the Social Security Act provide that SLFRF funds may be used to 
satisfy non-Federal share requirements for projects eligible under 
INFRA Grants (23 U.S.C. 117), Fixed Guideway Capital Investment Grants 
(49 U.S.C. 5309), or Mega Grants (49 U.S.C. 6701), as well as projects 
eligible for credit assistance under the TIFIA program (23 U.S.C. 
chapter 6). Recipients may also use SLFRF funds to repay a loan 
provided under the TIFIA program. These eligible activities are 
referred to as Pathway Three.
    Recipients may use SLFRF funds under Pathway Three for projects 
that have, or will prior to the SLFRF obligation deadline, receive 
funding from DOT under one of the above-referenced programs. Recipients 
must comply with the requirement that they may only use the greater of 
30% of their award and $10 million for Surface Transportation projects 
and Title I projects, taken together. Recipients using SLFRF funds 
under Pathway Three must also comply with the requirement that SLFRF 
funds supplement and not supplant other funds, described earlier in 
this interim final rule.
    As discussed above, the requirements of titles 23, 40, and 49 of 
the U.S. Code include cost-share requirements that generally apply to 
projects under transportation programs, and these requirements apply to 
the use of SLFRF for Surface Transportation projects. However, given 
the specific provision in sections 602(c)(5)(A) and 603(c)(6)(A) of the 
Social Security Act that SLFRF may be used to meet the non-Federal 
share requirements of the three programs referenced above, if a 
recipient uses SLFRF funds to satisfy the non-Federal share 
requirements for projects eligible under one of those programs, DOT 
will not treat the SLFRF funds as Federal funds for this limited 
purpose and will credit SLFRF toward applicable cost-share or non-
Federal match requirements accordingly. For example, under the INFRA 
program, Federal funds other than the participating DOT funds generally 
do not satisfy non-Federal cost share requirements, and Federal funds 
together must contribute not more than 80% of a project's costs. SLFRF 
funds used to cover the applicable non-Federal cost share requirements 
of a project under Pathway Three will not be treated as Federal funds 
and therefore are not considered against the 80% limit on Federal 
funding sources. Recipients using SLFRF funds to satisfy non-Federal 
cost share requirements under Pathway Three must consult with DOT to 
understand the applicable non-Federal cost share requirements and how 
SLFRF funds may be used for these purposes.
    Although the statute expressly permits recipients to use SLFRF 
funds to satisfy non-Federal cost share requirements for the above-
referenced programs, as with any use of funds to meet non-Federal cost 
share requirements, the requirements associated with the project, as 
administered by DOT, continue to apply to the use of all the funding 
for the project unless otherwise provided by DOT.
    Under Pathway Three, recipients will be required to comply with the 
relevant existing DOT reporting requirements associated with the 
Surface Transportation project for which they are using SLFRF funds for 
non-Federal share requirements. Recipients will be required to report 
certain information to Treasury, including the amount of SLFRF funds 
directed toward Surface Transportation projects and Title I projects, 
to ensure that recipients comply with the cap on funds associated with 
these eligible use categories.
    As discussed in the 2022 final rule, recipients may continue to use 
SLFRF funds available under the revenue loss eligible use category to 
satisfy non-Federal matching requirements. See the 2022 final rule for 
further information.
    Question 1: What, if any, additional clarification should Treasury 
provide as relates to determining whether Surface Transportation 
projects are eligible uses of the SLFRF?
    Question 2: What additional information or clarification is needed 
for recipients to understand the applicable program requirements for 
Pathway One for Surface Transportation projects?
    Question 3: What are the advantages and disadvantages of the 
eligibility criteria for the streamlined framework outlined in Pathway 
Two? Do these criteria adequately account for project risk in a manner 
that is both accurate and administrable? Why or why not?
    Question 4: What additional information or clarification is needed 
for recipients to understand the applicable program requirements for 
Pathway Two?
    Question 5: With respect to Pathway Two, what information should 
Treasury consider in developing the framework for projects outside the 
streamlined framework, in addition to the information that recipients 
will provide in the notices of intent? What types of projects do 
recipients intend to pursue under Pathway Two that would not be covered 
by the streamlined approach?
2. Title I Projects
Background
    The 2023 CAA amends sections 602 and 603 of the Social Security Act 
to permit recipients to use SLFRF funds for certain infrastructure 
projects, including projects eligible under Title I of the Housing and 
Community Development Act of 1974 (Title I projects).\131\ As described 
earlier in this interim final rule, recipients may only use the greater 
of 30% of their SLFRF award and $10 million, not to exceed a 
recipient's allocation, for all Surface Transportation projects 
(described in the prior section) and Title I projects (described in 
this section) taken together.
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    \131\ See 42 U.S.C. 5301 et seq.
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    In title I of the HCDA (Title I), Congress consolidated several 
complex and overlapping Federal assistance programs focused on 
community development into a more flexible block of funds distributed 
through a formula

[[Page 65012]]

allocation, known as the Community Development Block Grant (CDBG) and 
administered by the Department of Housing and Urban Development 
(HUD).\132\ Annual allocations through the CDBG program are based on 
population and various other measures, including poverty, age of 
housing, and housing overcrowding.\133\ CDBG funds are available to 
states and units of general local government (cities and counties); 
Tribal governments are eligible for Indian CDBG (ICDBG) grants that are 
awarded on a mainly competitive basis in the form of single purpose 
grants, and occasionally on a noncompetitive, first-come first-served 
basis to alleviate imminent threats to public health or safety.\134\
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    \132\ See 42 U.S.C. 5301.
    \133\ See 42 U.S.C. 5306.
    \134\ See 24 CFR 1003.100(a).
---------------------------------------------------------------------------

    There are varied ways that different government entities may be 
eligible for CDBG.\135\ To reflect the structure of the SLFRF program, 
under which each recipient received an individual award from Treasury 
and expends funds on its own behalf, Treasury's implementation of the 
Title I eligible use category for non-Tribal recipients aligns to HUD's 
treatment of entitlement grants under CDBG. For Tribal governments 
using SLFRF funds under the Title I eligible use category, Treasury's 
implementation generally reflects HUD's treatment of Tribal government 
grantees under ICDBG single purpose grants, as further described below.
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    \135\ HUD's implementation of CDBG varies based on the type of 
CDBG grantees, with specific treatment for entitlement grants 
(including metropolitan city and urban county grantees), 
nonentitlement funds (including HUD-administered Small Cities and 
Insular Area programs), and state-administered CDBG nonentitlement 
funds. For example, in the state CDBG program, a state's primary 
function is to administer CDBG grants for non-entitlement units of 
government, rather than to undertake eligible activities as grantees 
themselves. Meanwhile, entitlement grantees of CDBG are able to 
expend their CDBG allocations directly and without being subject to 
certain limitations that exist under the state CDBG program.
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    As discussed in the 2022 final rule, various types of activities 
that are eligible under the CDBG program are also eligible uses of the 
SLFRF program under the public health and negative economic impacts 
eligible use category, including homeownership assistance, investing in 
affordable housing preservation and repairs, and rehabilitation or 
demolition of blighted or abandoned properties. As noted above, the 
2023 CAA did not alter the existing four eligible use categories under 
the SLFRF program, and the eligible uses articulated in the 2022 final 
rule in the public health and negative economic impacts eligible use 
category remain unchanged. As such, recipients wishing to pursue these 
types of projects with SLFRF funds may want to continue doing so under 
the public health and negative economic impacts eligible use category 
rather than complying with the additional requirements of the new Title 
I projects eligible use category.
    The new Title I projects eligible use category makes additional 
activities available to SLFRF recipients, up to the cap on funds for 
this eligible use category. As described in the section titled Use of 
Funds to Satisfy Non-Federal Share Requirements, this includes using 
SLFRF funds for non-Federal match or cost-share requirements of a 
Federal financial assistance program in support of activities that 
would be eligible under Title I.\136\ By permitting state, local, and 
Tribal governments to use SLFRF funds for Title I projects, the statute 
provides additional flexibility for recipients to use SLFRF funds to 
meet the needs of their communities and provides clarity for recipients 
that may already have experience pursuing projects under Title I. The 
Title I requirements for programs administered by HUD are already 
familiar to many SLFRF recipients, which will help state, local, and 
Tribal governments to supplement funding more easily for existing 
projects under Title I or to pursue new projects using a familiar set 
of program requirements. Below, this interim final rule discusses 
eligible projects and applicable requirements for the Title I eligible 
use category.
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    \136\ SLFRF funds also remain available under the revenue loss 
eligible use category up to the amount of revenue lost due to the 
pandemic for the provision of government services. As described in 
the 2022 final rule, the provision of government services means any 
service traditionally provided by a government, which means that 
recipients could also choose to use SLFRF funds in the revenue loss 
eligible use category for community development activities.
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    Unlike Pathway Two for Surface Transportation projects, discussed 
in the previous section, the interim final rule does not provide a 
``streamlined framework'' for Title I projects. Title I projects differ 
from Surface Transportation projects in several meaningful ways. First, 
as discussed above, the project approval and certification requirements 
of titles 23, 40, and 49 of the U.S. Code and title I of the HCDA 
generally must be satisfied prior to recipients obligating and 
expending funds on Surface Transportation projects and Title I 
projects. However, under CDBG, there is no formal approval on a 
project-by project-basis by HUD other than in the case of projects 
subject to certain environmental reviews.\137\ Accordingly, it is more 
feasible for recipients to determine to use SLFRF funds for Title I 
projects, to submit required environmental information prior to 
undertaking projects, and to obtain Treasury approval, all in time for 
the 2024 obligation and 2026 expenditure deadlines, even if a large 
number of SLFRF recipients decide to spend funds under this eligible 
use category. Second, as mentioned above, many of the eligible 
activities under Title I projects are already available to SLFRF 
recipients under the public health and negative economic impacts 
eligible use category, including using funds for capital expenditures, 
for which recipients are able to use their full SLFRF award toward 
eligible uses and are not subject to the limitations discussed in this 
section. In the case of Surface Transportation projects, recipients are 
only able to undertake similar activities as a government service 
through the revenue loss eligible use category. For these reasons, 
Treasury anticipates that recipients will undertake fewer projects 
under the Title I projects eligible use category.
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    \137\ While CDBG activities are outlined in planning documents 
submitted to HUD, these planning documents cover a grantee's 
programmatic plans for all HUD awards (not just those authorized 
under Title I) on an annual basis with respect to action plans and a 
multi-year basis with respect to consolidated plans. Based on the 
structure of the SLFRF program, certification and approval 
requirements associated with these plans are irrelevant for the 
SLFRF program. In any event, HUD does not affirmatively approve CDBG 
grantees' planning documents, but the agency may disapprove plans as 
necessary.
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    Prohibition on Supplanting Other Funds. The 2023 CAA provides that 
funds used for Title I projects shall ``supplement, and not supplant, 
other Federal, State, territorial, Tribal, and local government funds 
(as applicable) otherwise available for such uses.'' The phrase ``other 
. . . funds available for such uses'' refers to (i) in the case of non-
Federal funds, non-SLFRF funds that have been obligated for specific 
uses that are eligible under the Title I eligible use category or (ii) 
in the case of Federal funds, funds that a Federal agency has committed 
to a particular project pursuant to an award agreement or otherwise.
    Under prong (i), for the purpose of identifying non-Federal funds 
that have been obligated for specific uses, the definition of 
``obligation'' used in the 2022 final rule applies, which is ``an order 
placed for property and services and entering into contracts, 
subawards, and similar transactions that require payment.'' \138\ As 
such, under prong (i),

[[Page 65013]]

a recipient may not de-obligate funds that were obligated for specific 
uses that are eligible under this section (e.g., by cancelling, 
amending, renegotiating, or otherwise revising or abrogating a 
contract, subaward, or similar transaction that requires payment) and 
replace those previously obligated funds with SLFRF funds under this 
eligible use category.
---------------------------------------------------------------------------

    \138\ See Final Rule FAQ 13.17 for additional information about 
obligations. This approach applies a concrete standard that is known 
to SLFRF recipients and administrable by Treasury.
---------------------------------------------------------------------------

    The restriction in prong (ii), on replacing funds that a Federal 
agency has committed to a particular project pursuant to an award 
agreement or otherwise, applies to all funding sources covered by the 
commitment. Prong (ii) does not apply to HUD funds provided to a CDBG 
grantee for activities included in its annual action plan, because 
imposition of this restriction would be inconsistent with the 
substantial flexibility that the CDBG program otherwise provides its 
grantees. For example, a CDBG grantee's annual action plan reflects 
planned spending on activities across multiple HUD-administered 
programs, and grantees have significant flexibility to amend plans to 
reflect adjusted planned spending throughout the year.
    Thus, a recipient may not de-obligate funds and replace those 
previously obligated funds with SLFRF funds under this eligible use 
category. Nor may a recipient use SLFRF funds to replace Federal or 
non-Federal funds identified in a Federal commitment, such as an award 
agreement.
    However, a recipient may use SLFRF funds (1) to provide additional 
funding to a project without reducing the amount of other funds 
obligated to such project, thereby funding additional activities or 
expanding the scope of projects; (2) to undertake a project for which 
funds have not been previously obligated or identified in a Federal 
commitment, such as an award agreement. For example, if a recipient had 
obligated non-SLFRF funds for the construction of a community garden, 
SLFRF funds under this eligible use category could be used to provide 
additional resources to that project or to undertake a separate 
eligible project, but the recipient could not terminate or renegotiate 
an existing contract for the construction of that garden and use SLFRF 
funds to replace the funds previously obligated for that purpose. SLFRF 
recipients that are also CDBG grantees (but not ICDBG grantees) should 
note that HUD program requirements related to timely expenditures of 
CDBG funds--providing that ``a grantee cannot have more than 1.5 times 
their annual allocation sitting in their line of credit at the U.S. 
Treasury''--continue to apply to CDBG funds.\139\ Accordingly, Treasury 
encourages SLFRF recipients that are also CDBG grantees to continue to 
spend their CDBG funds in compliance with such requirements.
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    \139\ CDBG grantees have a line of credit that includes the 
amount of CDBG funds that are available for those grantees. 
According to program rules on timely expenditures, ``a grantee 
cannot have more than 1.5 times their annual allocation sitting in 
their line of credit at the U.S. Treasury.'' Moreover, if a grantee 
``chronically has more than 1.5 times their allocation in their line 
of credit as of 60 days prior to the end of the grantee's program 
year, HUD can withhold future grants until the grantee effectively 
spends their existing resources.'' For more information, see 
Basically CDBG for Entitlements, Chapter 11: Financial Management, 
Section 11.7 (``Timely Expenditure of Funds'') (Sept. 2017), 
available at https://www.hud.gov/sites/documents/DOC_16480.PDF.
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a. Eligible Title I Projects
    Recipients may use SLFRF funds for Title I projects, which includes 
any projects that are currently eligible activities, programs, and 
projects under CDBG and ICDBG, as described further below. Principally, 
Title I authorizes CDBG and ICDBG, as well as several other grant 
programs with largely overlapping eligible activities as CDBG.\140\ As 
discussed below, grants made under these other Title I programs do not 
cover eligible activities incremental to what is allowable under CDBG 
and ICDBG, and thus their incorporation here would not make any 
additional eligible uses under Title I available to SLFRF recipients.
---------------------------------------------------------------------------

    \140\ See 42 U.S.C. 5301 et seq.
---------------------------------------------------------------------------

    In the Title I eligible use category, recipients may use SLFRF 
funds for any of the activities listed in section 105(a) of the HCDA 
(42 U.S.C. 5305(a)). When carrying out these activities, recipients 
should comply with the related eligibility requirements set forth at 24 
CFR 570.201-570.209 with respect to recipients that are not Tribal 
governments and 24 CFR 1003.201-1003.209 with respect to Tribal 
governments. Recipients may refer to additional HUD guidance for 
further information about the projects eligible under CDBG, including 
guidance about complying with the national objectives and other program 
requirements.\141\ Below is an illustrative list of Title I projects 
for which recipients may use SLFRF funds pursuant to section 105(a) of 
the HCDA:
---------------------------------------------------------------------------

    \141\ See e.g., Department of Housing and Urban Development, 
Guide to National Objectives and Eligible Activities for CDBG 
Entitlement Communities, Chapter 2: Categories of Eligible 
Activities (Jan. 2014), available at https://www.hud.gov/sites/documents/DOC_17133.PDF.
---------------------------------------------------------------------------

     Acquisition of certain real property for a public purpose, 
subject to certain limitations;
     Disposition of certain property, subject to certain 
limitations and rules;
     Acquisition, construction, reconstruction, rehabilitation, 
or installation of public facilities and improvements, clearance and 
remediation activities;
     Public services, subject to the limitation discussed 
below;
     Interim assistance where immediate action is required for 
certain activities such as street repair, and costs to complete an 
urban renewal project under Title I;
     Relocation payments for relocated families, businesses, 
nonprofit organizations, and farm operations, under certain conditions;
     Payments to housing owners for loss of certain rental 
income;
     Certain housing services;
     Acquisition, construction, reconstruction, rehabilitation, 
or installation of privately owned utilities;
     Rehabilitation and reconstruction of housing, conversion 
of structures to housing, or construction of certain housing;
     Homeownership assistance;
     Technical assistance to entities to increase capacity to 
carry out CDBG-eligible projects;
     Assistance to certain institutions of higher education to 
carry out eligible activities;
     Administration activities including general management, 
oversight, and coordination costs, fair housing activities, indirect 
costs, and submission of applications for Federal programs;
     Planning activities including the development of plans and 
studies, policy planning, and management and capacity building 
activities; and
     Satisfying the non-Federal share requirements of a Federal 
financial assistance program in support of activities that would be 
eligible under the CDBG and ICDBG programs, as discussed below.
    Use of SLFRF Funds to Satisfy Non-Federal Match of Cost-Share 
Requirements Under Title I. As noted above, recipients may use SLFRF 
funds, subject to the cap on funds for this eligible use category, to 
meet the non-Federal match or cost-share requirements of a Federal 
financial assistance program in support of activities that would be 
eligible under the CDBG and ICDBG programs and would comply with all 
applicable CDBG and ICDBG requirements. Recipients should analyze the 
projects and activities for which they intend to use SLFRF funds to 
meet non-Federal share

[[Page 65014]]

requirements to confirm that the project or activity would constitute 
an eligible activity under section 105 of the HCDA and would comply 
with HUD's statutory, regulatory, and other requirements applicable to 
CDBG and ICDBG activities.
    As articulated in the 2022 final rule, SLFRF funds remain available 
under the revenue loss eligible use category to meet non-Federal 
matching requirements. For discussion of the use of SLFRF funds for 
non-Federal matching requirements under the revenue loss eligible use 
category or as otherwise authorized by statute, see the 2022 final 
rule. For discussion of the use of SLFRF funds for non-Federal matching 
requirements for Surface Transportation projects, see the Surface 
Transportation projects section.
    Use of Loans and Revolving Loan Funds Towards Eligible Activities 
Under Title I. CDBG and ICDBG grantees generally may utilize financing 
vehicles such as loans and revolving loan funds to carry out eligible 
activities. For example, sections 105(a)(14), (22), and (25) of the 
HCDA provide that CDBG recipients may use their funds to provide loans 
or finance revolving loan funds for certain activities.\142\
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    \142\ See 42 U.S.C. 5305(a).
---------------------------------------------------------------------------

    Recipients using SLFRF funds for Title I projects may extend 
credit, by making loans using SLFRF funds or using SLFRF to establish 
revolving loan funds, to support activities that are eligible uses of 
funds under CDBG. Such activities are subject to Treasury's existing 
guidance on loans under the SLFRF program,\143\ as well as Treasury's 
guidance on program income, in light of the nature of the SLFRF program 
where these funds are available for a limited time, not on a recurring 
basis, and subject to approaching obligation and expenditure 
deadlines.\144\ As a reminder, extensions of credit with SLFRF funds 
are subject to program requirements as described in the Applicable 
Requirements for Title I Projects section of this interim final rule 
and the cap on funds that applies to this eligible use category.
---------------------------------------------------------------------------

    \143\ See id.
    \144\ See id. at FAQ 13.11. How does Treasury treat program 
income?
---------------------------------------------------------------------------

    Other Supplemental Assistance. From time to time, Congress 
appropriates additional funding for certain activities that are 
generally available under CDBG but are limited to addressing specific 
challenges that communities face. Even though these activities largely 
mirror those eligible under Title I, this supplemental assistance is 
not authorized under Title I. Accordingly, they are not separately 
eligible categories of activities under Title I for purposes of the 
SLFRF program. For example, recipients may be familiar with CDBG-
Disaster Recovery (CDBG-DR) and CDBG-Mitigation (CDBG-MIT). These forms 
of supplemental assistance appropriate emergency supplemental funds on 
a case-by-case basis for specific disasters and permit recipients, in 
addition to their regular CDBG credit line or ICDBG grants, to spend 
funds on certain eligible activities related to disaster relief, long-
term recovery, restoration of housing and infrastructure, economic 
revitalization and mitigation. When additional funds are appropriated 
through CDBG-DR or CDBG-MIT, HUD is typically granted authority to 
grant waivers and impose alternative requirements to those existing 
Title I requirements that govern the CDBG and ICDBG programs. Such 
waivers or alternative requirements are not applicable to this eligible 
use category, as this supplemental assistance is not a project under 
Title I and such authority is not provided for in the HCDA, but rather 
in the individual CDBG-DR or CDBG-MIT appropriations.
    Nonetheless, recipients considering using SLFRF funds to respond to 
both the near- and long-term consequences of disasters are reminded 
that the eligible activities under section 105 of Title I are very 
flexible and may address certain disaster relief and disaster 
mitigation needs. Accordingly, SLFRF recipients may pursue such 
activities under the Title I projects eligible use as long as all 
requirements are met. In addition, recipients may provide emergency 
relief from the physical and negative economic impacts of natural 
disasters, including mitigation activities, through the eligible use 
category discussed in the section titled Emergency Relief from Natural 
Disasters of this interim final rule.
    Other Title I Programs Not Available Under the SLFRF Program. 
Certain sections of Title I authorize HUD to make grants and loans to 
governments under different programs in addition to CDBG. These 
programs are listed below and, other than the section 108 Loan 
Guarantee program, are considered inactive by HUD:

 Special Purpose Grants \145\
---------------------------------------------------------------------------

    \145\ See 42 U.S.C. 5307.
---------------------------------------------------------------------------

 Urban Development Action Grant Program \146\
---------------------------------------------------------------------------

    \146\ See 42 U.S.C. 5318.
---------------------------------------------------------------------------

 John Heinz Neighborhood Development Program \147\
---------------------------------------------------------------------------

    \147\ See 42 U.S.C. 5318a.
---------------------------------------------------------------------------

 Section 108 Loan Guarantee Program \148\
---------------------------------------------------------------------------

    \148\ See 42 U.S.C. 5308.

    While the 2023 CAA amended the SLFRF program to permit recipients 
to use SLFRF funds for Title I projects, some of these programs address 
HUD's programmatic authorities rather than expanding eligible uses 
available to HUD grantees. Therefore, these programs are not relevant 
for purposes of implementing this Title I eligible use under the SLFRF 
program. For example, Special Purpose Grants are competitively awarded 
by HUD to the same recipients as CDBG and ICDBG, as well as an expanded 
set of recipient types (e.g., Historically Black Colleges and 
Universities as direct recipients of grants) to undertake certain of 
the activities available under CDBG. This program expands HUD's 
grantmaking authority rather than expanding eligible uses available to 
grantees under Title I, and therefore is not included as a new eligible 
project under the SLFRF program. Similarly, the John Heinz Neighborhood 
Development Program authorizes HUD to provide Federal matching funds to 
eligible neighborhood development organizations on a competitive basis, 
expanding the entities to which HUD may award grants rather than 
expanding eligible uses for Title I grantees.
    Similarly, the Section 108 Loan Guarantee Program authorizes HUD to 
provide loan guarantees to recipients of CDBG, as opposed to 
authorizing an eligible activity by grantees themselves.\149\ The Urban 
Development Action Grant program authorizes HUD to issue grants to 
cities and urban counties experiencing severe economic distress to help 
stimulate economic development activity needed to aid in economic 
recovery by undertaking eligible activities under CDBG, as enumerated 
under section 105(a) of the HCDA.\150\ Both of these programs address 
HUD's programmatic authority and do not provide HUD grantees eligible 
activities beyond those already available under CDBG and ICDBG, and 
therefore these programs are not relevant for purposes of implementing 
this Title I eligible use under the SLFRF program.
---------------------------------------------------------------------------

    \149\ See 42 U.S.C. 5308.
    \150\ See 42 U.S.C. 5318.
---------------------------------------------------------------------------

    Additionally, HUD can award imminent threat grants under ICDBG to 
Tribal governments. Imminent threat grants alleviate an imminent threat 
to public health or safety that requires immediate resolution and are 
awarded only after the HUD Office of Native American Programs 
determines that

[[Page 65015]]

such conditions exist and if funds are available for such grants.\151\ 
Grants made under this program do not authorize eligible activities 
incremental to what is allowable under ICDBG single purpose grants, and 
thus their incorporation here would not make any additional eligible 
uses under Title I available to SLFRF recipients. Accordingly, imminent 
threat grants are not separately eligible as Title I projects. Given 
the eligible activities available to ICDBG grantees under imminent 
threat grants are the same as are available under single purpose 
grants, Tribal government recipients of SLFRF are still able to use 
SLFRF funds for projects they generally could fund with ICDBG imminent 
threat grants under the Title I projects eligible use category. As 
described further below, the applicability of program requirements for 
Tribal governments will mirror the program requirements grantees comply 
with under ICDBG single purpose grants. As noted above, recipients may 
provide emergency relief from the physical and negative economic 
impacts of natural disasters, including mitigation activities, through 
the eligible use category discussed in the section titled Emergency 
Relief from Natural Disasters of this interim final rule.
---------------------------------------------------------------------------

    \151\ See 24 CFR 1003.100(a).
---------------------------------------------------------------------------

    Ineligible Activities Under Title I. The HUD regulations 
implementing the eligible activities under CDBG and ICDBG provide that 
certain projects are generally not eligible CDBG activities, and 
accordingly, SLFRF recipients may not use SLFRF funds for those 
projects.\152\ The activities that are generally ineligible under CDBG 
and ICDBG are the following, subject to certain exceptions as described 
more fully at 24 CFR 570.207 with respect to SLFRF recipients that are 
not Tribal governments and 24 CFR 1003.207 with respect to Tribal 
government recipients:
---------------------------------------------------------------------------

    \152\ See 24 CFR 570.207 and 1003.207.

 Buildings or portions thereof used for the general conduct of 
government
 General government expenses
 Political activities
 Purchase of equipment
 Operating and maintenance expenses
 New housing construction
 Income payments

    Recipients may reference the ``Activities Specified as Ineligible'' 
section of HUD's Guide to National Objectives and Eligible Activities 
for CDBG Entitlement Communities for more information.\153\ However, 
while the projects listed above are not eligible uses of SLFRF funds as 
a Title I project, they still may be eligible uses of SLFRF funds under 
other SLFRF eligible use categories. See the 2022 final rule for 
additional information. As with all other eligible uses in the SLFRF 
program, the general restrictions on use outlined in the 2022 final 
rule apply to SLFRF funds used for Title I projects, unless the 
applicable requirements of Title I provide otherwise.
---------------------------------------------------------------------------

    \153\ See e.g., Department of Housing and Urban Development, 
Guide to National Objectives and Eligible Activities for CDBG 
Entitlement Communities, Chapter 2: Categories of Eligible 
Activities, 2-87 (Jan. 2014), available at https://www.hud.gov/sites/documents/DOC_17133.PDF.
---------------------------------------------------------------------------

b. Applicable Requirements for Title I Projects
    Recipients using SLFRF funds for Title I projects must comply with 
certain requirements and restrictions. These requirements and 
restrictions are in addition to the eligibility requirements discussed 
above. As described earlier in this interim final rule, recipients may 
only use the greater of 30% of their award and $10 million (not to 
exceed their award) for Title I projects (described in this section) 
and Surface Transportation projects (described above), taken together. 
Also as described earlier in this interim final rule, for Title I 
projects, recipients must obligate funds by December 31, 2024 and 
expend funds by September 30, 2026. In the section that follows, this 
interim final rule describes how the requirements of Title I, NEPA, and 
the associated implementing regulations apply to SLFRF funds used for 
Title I projects.
    The 2023 CAA provides that, except as otherwise determined by the 
Secretary, the requirements of Title I and NEPA apply to SLFRF funds 
used for Title I projects. Accordingly, state, local, and Tribal 
governments that use SLFRF funds for Title I projects generally must 
comply with Title I requirements and the associated regulations, except 
where noted below.\154\ In addition, recipients must comply with NEPA 
requirements, as implemented by Title I and the associated HUD 
regulations, and as adapted to the SLFRF program by Treasury. Unless 
Title I provides otherwise or Treasury has otherwise clarified, SLFRF 
recipients should continue to comply with SLFRF regulations and 
guidance as found in the 2022 final rule, SLFRF Compliance and 
Reporting Guidance, and other guidance released by Treasury for SLFRF. 
In the section that follows, this interim final rule discusses the 
requirements of Title I that apply to recipients using SLFRF funds 
under this eligible use category and the requirements of Title I that 
do not apply to recipients using SLFRF funds under this eligible use 
category.
---------------------------------------------------------------------------

    \154\ Treasury is applying the regulations associated with the 
applicable provisions of Title I because they generally inform and 
provide context for how to apply with the requirements set forth in 
the statute.
---------------------------------------------------------------------------

    Treasury has determined not to apply certain requirements of Title 
I when such requirements conflict with the existing SLFRF framework or 
otherwise are likely to preclude recipients from exercising the 
additional authorities provided by the statute. For example, and as 
discussed above, Treasury determined that the project-level approval 
and certification requirements generally must be satisfied prior to 
recipients obligating and expending funds on Title I projects. Under 
CDBG, while projects are outlined in planning documents submitted to 
HUD, there is no formal approval on a project-by project-basis by HUD 
other than projects subject to certain environmental reviews.\155\ 
Accordingly, only these project-level requirements must be satisfied, 
as described further below. On the other hand, recipients are not 
required to provide the Title I certification requirements that apply 
at the consolidated and annual planning level, because that level of 
planning and the associated certifications conflict with the SLFRF 
program framework under which recipients already have funds in hand and 
are authorized to use funds for discrete projects, rather than being 
required to design an annual process for how funding will be used. 
Furthermore, to require recipients to prepare consolidated and annual 
plans and undergo a public review process likely would preclude 
recipients from exercising the additional authorities provided by the 
statute, under which recipients have limited time remaining to 
determine how to obligate and expend funds. In contrast, certain of the 
applicable requirements discussed below also would apply at the 
aggregate CDBG funding level, like the primary objective, but those 
requirements are more readily adaptable as project-level requirements, 
consistent with the SLFRF framework, and Treasury has taken that 
approach as described further below. The requirements of Title I 
generally apply to recipients using SLFRF funds for Title I projects, 
with some modification to harmonize the provisions with the SLFRF 
framework, as discussed further below. The statutory requirements 
include the following:
---------------------------------------------------------------------------

    \155\ See 42 U.S.C. 5304(g) and 24 CFR part 58.


[[Page 65016]]


---------------------------------------------------------------------------

 Activity eligibility requirements, including the following 
requirements articulated in section 105 of the HCDA:
    [cir] CDBG Primary Objective requirement
    [cir] CDBG National Objectives requirement
    [cir] Public Services Cap
 Definitions relevant for project administration, oversight, 
and execution
 Procurement requirements
 Wage and labor requirements
 Environmental requirements and related project approval 
requirements (environmental certifications)

    For each of the applicable requirements, the associated HUD 
regulations generally will apply as well. Specifically, HUD regulations 
related to these requirements apply where they:

 Enumerate and clarify eligible activities under CDBG
 Specify cost caps or the method to calculate costs caps
 Direct recipients to the applicability of other Federal laws 
and regulations

    CDBG Primary Objective. Section 101(c) of the HCDA describes the 
``primary objective'' of Title I as ``the development of viable urban 
communities, by providing decent housing and a suitable living 
environment and expanding economic opportunities, principally for 
persons of low and moderate income.'' \156\ Section 101(c) of the HCDA 
further provides that not less than 70% of the aggregate funds provided 
to non-Tribal CDBG grantees under section 106 of the HCDA shall be used 
for the support of activities that benefit persons of low and moderate 
income. Under ICDBG, Tribal governments must use not less than 70% of 
each single purpose grant to principally benefit low- and moderate-
income persons.\157\ This 70% threshold requirement is referred to as 
the ``primary objective'' requirement.
---------------------------------------------------------------------------

    \156\ See 42 U.S.C. 5301(c).
    \157\ See 24 CFR 1003.208.
---------------------------------------------------------------------------

    Section 102(a)(20) of the HCDA defines low- and moderate-income 
persons to mean families and individuals whose incomes do not exceed 
80% of median income of the area involved, based on data published most 
recently by HUD, with adjustments for smaller and larger families; 
\158\ it also authorizes HUD to establish income thresholds that are 
higher or lower because of unusually high or low incomes in such 
area.\159\ HUD regulations for CDBG grantees implement the statutory 
definition by aligning low- and moderate-income designations for CDBG 
activities to Section 8's very low- and low-income thresholds 
respectively,\160\ which HUD publishes annually.\161\ CDBG grantees are 
then required to comply with the requirements of 24 CFR 570.200(a)(3) 
and its cross-referenced provisions to determine compliance with the 
primary objective, including requirements associated with area benefit 
activities, limited clientele activities, housing activities, and job 
creation or retention activities.
---------------------------------------------------------------------------

    \158\ See 42 U.S.C. 5302(a)(20)(a).
    \159\ See 42 U.S.C. 5302(a)(20)(b).
    \160\ See 24 CFR 570.3.
    \161\ HUD's Office of Policy Development and Research publishes 
annual income limits for certain housing-related programs, and 
develops these limits based on Median Family Income estimates and 
Fair Market Rent area definitions. See https://www.huduser.gov/portal/datasets/il.html#2022_data.
---------------------------------------------------------------------------

    With respect to Tribal governments, HUD awards ICDBG single-purpose 
grants on a competitive basis and determines that an applicant 
sufficiently addresses the primary objective based, in part, on data 
made available by the Federal government, including HUD, and on data 
provided by Tribes. Specifically, HUD regulations for ICDBG grantees 
implement the statutory definition of low- and moderate-income persons 
by defining a ``low and moderate income beneficiary'' as a family, 
household, or individual whose income does not exceed 80 percent of the 
median income for the area, as determined by HUD, with adjustments for 
smaller and larger households or families.\162\ The regulations permit 
HUD to adjust the ceiling based on HUD's findings that such variations 
are necessary because of unusually high or low household or family 
incomes. ICDBG grantees then follow the provisions of 24 CFR 1003.208 
to determine compliance with the primary objective, including 
requirements associated with area benefit activities, limited clientele 
activities, housing activities, and job creation or retention 
activities. In each of these activity areas, the regulations provide 
criteria for the activity to be considered to benefit low- and 
moderate-income persons. In some instances, the criteria rely on Census 
Bureau data or instead Tribes may provide survey data.\163\
---------------------------------------------------------------------------

    \162\ See 24 CFR 1003.4.
    \163\ See e.g., 24 CFR 1003.208(a)(3), which states that ``in 
determining whether there is a sufficiently large percentage of low- 
and moderate-income persons residing in the area served by an 
activity . . . the most recently available decennial census 
information shall be used to the fullest extent feasible, together 
with the Section 8 income limits that would have applied at the time 
the income information was collected by the Census Bureau. Grantees 
that believe that the census data does not reflect current relative 
income levels in an area, or where census boundaries do not coincide 
sufficiently well with the service area of an activity, may conduct 
(or have conducted) a current survey of the residents of the area to 
determine the percent of such persons that are low and moderate 
income.''
---------------------------------------------------------------------------

    Under the HUD CDBG regulations, non-Tribal CDBG grantees may elect 
to apply the 70% requirement to their CDBG funds expended over a 1-, 2-
, or 3-year period, and a majority of these CDBG grantees elect a 3-
year period. For example, a non-Tribal CDBG grantee that elects a 3-
year period must use at least 70% of its CDBG funds over that 3-year 
period to principally benefit low- and moderate-income persons. For 
ICDBG grants, the 70% requirement applies to each single purpose 
grant.\164\
---------------------------------------------------------------------------

    \164\ See 24 CFR 1003.208.
---------------------------------------------------------------------------

    Treasury is implementing the primary objective requirement by 
requiring recipients to direct at least 70% of their SLFRF funds used 
for Title I projects over the course of the SLFRF program to projects 
that principally benefit low- and moderate-income persons. Non-Tribal 
recipients must refer to low- and moderate-income thresholds as defined 
by HUD regulations at 24 CFR 570.3, which align such income thresholds 
to data published most recently by HUD for Section 8 low- and very low-
income levels. To determine if an activity principally benefits low- 
and moderate-income persons, the requirements of 24 CFR 570.200(a)(3) 
apply.
    Tribal government recipients must refer to the low- and moderate-
income thresholds as defined by HUD at 24 CFR. 1003.4, and to the 
requirements of 24 CFR 1003.208 to determine if an activity principally 
benefits low- and moderate-income persons, subject to the following 
clarification. Recognizing that some Tribes do not have access to the 
above-referenced Census Bureau data and may not have the ability to 
conduct a survey within the short-time frame necessary to meet SLFRF 
obligation deadlines, Treasury is providing an alternative to satisfy 
the definition of ``low and moderate income'' as part of complying with 
the primary objective requirement. Instead of relying on Census data, 
Tribal governments may demonstrate that beneficiaries of Title I 
assistance are low or moderate income based on an attestation by the 
Tribe that these beneficiaries are receiving or are eligible to receive 
needs-based services provided by the Tribe. Needs-based services are 
defined as services administered by the Tribal government on the basis 
of an individual's income. Tribal governments undertaking Title I 
projects may rely on this self-attestation, in lieu of relying on 
Census Bureau or Section 8 data, when complying with

[[Page 65017]]

the primary objective requirement. If a Tribal government prefers to 
demonstrate that its project satisfies the primary objective in 
accordance with the terms of 24 CFR 1003.4 and 1003.208, rather than 
providing the alternative attestation, the Tribe may do so. As 
described earlier in this section, recipients may use SLFRF funds to 
supplement, but not supplant, an existing CDBG or ICDBG project. 
Accordingly, where Tribal governments use SLFRF funds to supplement 
funds for existing ICDBG projects, the Tribal government may rely on 
HUD's prior determination of compliance with the requirements of 24 CFR 
1003.208 for the existing project, since HUD would have already vetted 
the existing projects during the ICDBG application process.
    As discussed in the 2021 interim final rule, 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.\165\ Further, mixed income communities, with a significant 
share of Tribal members at the lowest levels of income, are often not 
included in eligible qualified census tracts. Additionally, as 
discussed in the 2022 final rule, Tribal governments may face 
administrability challenges with operationalizing an income-based 
standard, and data on incomes of Tribal members in a respective Tribe 
is not readily available as presently this data is not collected at the 
Tribal membership level.\166\
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    \165\ See 86 FR 26786 (May 17, 2021).
    \166\ For instance, data from the American Community Survey is 
based on geographical location rather than Tribal membership. U.S. 
Census Bureau, My Tribal Area, https://www.census.gov/Tribal/Tribal_glossary.php.
---------------------------------------------------------------------------

    For these reasons, using decennial Census Bureau data in 
determining if an activity benefits low- and moderate-income 
beneficiaries as described in 24 CFR 1003.208(a)(3) would present 
similar challenges for many of the SLFRF Tribal government recipients, 
where location-based Census data may inaccurately portray the income 
and economic conditions of a Tribe. Additionally, requiring Tribes to 
conduct and provide survey data on residents of their areas would 
frustrate their ability to utilize SLFRF funds for Title I projects 
within the obligation and expenditure timelines provided by the 2023 
CAA. If a Tribe delivers needs-based services (e.g., housing services, 
child assistance, etc.), the Tribe generally also has verified income 
eligibility of the recipients of those services, as Tribes ordinarily 
restrict eligibility for these activities based on the income of 
applicants.
    The total amount of SLFRF funds used for Title I projects from the 
cost incurred date of December 29, 2022 through September 30, 2026 must 
meet the primary objective requirements as described above. By applying 
these requirements over the course of the SLFRF program, this interim 
final rule aligns CDBG primary objective compliance for SLFRF funds 
used for Title I projects with the obligation and expenditure deadlines 
on SLFRF funds in general. Although CDBG state and local government 
grantees have the option to elect their own 1-, 2-, or 3- year 
reporting periods, and ICDBG Tribal grantees apply the CDBG primary 
objective requirement for their specific grant allocations, SLFRF 
recipients are not required to obligate or expend SLFRF funds on an 
annual basis and instead must comply with obligation and expenditure 
deadlines over the full period of performance, with flexibility to 
adjust and add programs prior to the obligation deadline. This 
alignment makes the CDBG primary objective requirement administrable by 
SLFRF recipients over the SLFRF period of performance and coordinates 
related reporting with SLFRF program closeout timelines. Recipients may 
reference Chapter 4 of HUD's Guide to National Objectives and Eligible 
Activities for CDBG Entitlement Communities for more details on how to 
satisfy the primary objective requirement with their funds. Recipients' 
use of SLFRF funds for Title I projects and their compliance with the 
primary objective will be assessed separately from HUD's assessment of 
CDBG grantees' compliance with requirements for use of their CDBG 
funds.
    CDBG National Objectives. In addition to describing the CDBG 
primary objective requirement, section 101(c) of the HCDA also provides 
that states and units of general local governments may only use CDBG 
funds for the support of community development activities that are 
directed toward certain specific objectives, which are referred to as 
the national objectives. HUD regulations provide that the national 
objectives of the CDBG program are to:
     Benefit low- and moderate-income persons,
     Prevent or eliminate slums or blight, and
     Meet other community development needs having a particular 
urgency because existing conditions pose a serious and immediate threat 
to the health or welfare of the community and other financial resources 
are not available to meet such needs.\167\
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    \167\ See 24 CFR 570.208(a)-570.208(c) and Department of Housing 
and Urban Development, Guide to National Objectives and Eligible 
Activities for CDBG Entitlement Communities, Chapter 3: Meeting a 
National Objective (Jan. 2014), available at https://www.hudexchange.info/sites/onecpd/assets/File/CDBG-National-Objectives-Eligible-Activities-Chapter-3.pdf.
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    ICDBG grantees administering single purpose grants are not subject 
to the same requirement that activities must align with at least one 
national objective. As discussed above, Tribal governments 
administering an ICDBG single purpose grant must use at least 70% of 
each grant to principally benefit low- and moderate-income persons, but 
otherwise may use their ICDBG grant aligned to purposes as approved in 
their ICDBG application.\168\
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    \168\ See 24 CFR 1003.208.
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    Treasury is implementing the national objectives requirement by 
providing that for non-Tribal SLFRF recipients, each Title I project 
funded by SLFRF funds must satisfy at least one CDBG national objective 
in accordance with relevant HUD regulations set forth at 24 CFR 
570.208.\169\ Thus all recipients, except for Tribal governments, using 
SLFRF funds for Title I projects must meet at least one national 
objective as described above, and compliance with this requirement will 
be assessed separately from existing CDBG national objectives 
requirements applicable to CDBG grantees. Tribal government recipients 
that use SLFRF funds for Title I projects are not subject to this 
requirement, reflecting that there is no requirement for Tribal 
government grantees under ICDBG to use their funds for any specific 
national objective outside of the primary objective. For more 
information on the CDBG national objectives, see Chapter 3 of HUD's 
Guide to National Objectives and Eligible Activities for CDBG 
Entitlement Communities.\170\
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    \169\ See CFR 570.208 and Department of Housing and Urban 
Development, Guide to National Objectives and Eligible Activities 
for CDBG Entitlement Communities, Chapter 2: Categories of Eligible 
Activities (Jan. 2014), available at https://www.hudexchange.info/sites/onecpd/assets/File/CDBG-National-Objectives-Eligible-Activities-Chapter-2.pdf.
    \170\ See Department of Housing and Urban Development, Guide to 
National Objectives and Eligible Activities for CDBG Entitlement 
Communities, Chapter 3: Meeting a National Objective (Jan. 2014), 
available at https://www.hudexchange.info/sites/onecpd/assets/File/CDBG-National-Objectives-Eligible-Activities-Chapter-3.pdf.
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    Applicability of Public Services Cap. Section 105(a)(8) of the HCDA 
provides that the provision of public services is an eligible activity 
under Title I \171\ but that not more than 15% of a grantee's

[[Page 65018]]

CDBG allocation may be spent on eligible ``public services'' 
activities.\172\ This 15% public services cap is applied annually to 
CDBG grantees and on a grant-by-grant basis for ICDBG grantees.
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    \171\ See 42 U.S.C. 5305(a)(8).
    \172\ See 42 U.S.C. 5305(a)(8).
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    Treasury is implementing this requirement by providing that not 
more than 15% of SLFRF funds used for Title I projects over the course 
of the SLFRF program may be spent under the ``public services'' 
category, in accordance with relevant HUD regulations set forth at 24 
CFR 570.201(e) for non-Tribal recipients and at 24 CFR 1003.201(e) for 
Tribal recipients. Thus, the total amount of SLFRF funds used for Title 
I projects for costs incurred from December 29, 2022 through September 
30, 2026 must meet the public services cap as described above, and 
compliance with this requirement will be assessed separately from 
existing CDBG and ICDBG public services cap compliance on CDBG and 
ICDBG grantees. The approach to align public services cap compliance to 
SLFRF program obligation and expenditure deadlines and the accompanying 
rationale mirror the approach taken for SLFRF recipients' compliance to 
the CDBG primary objective, as outlined earlier in this section. This 
alignment makes the public services cap administrable by SLFRF 
recipients over the SLFRF period of performance and coordinates related 
reporting with SLFRF program closeout timelines. For more information 
on activities considered public services for purposes of the 15% cap, 
or more information on the public services cap itself, see Chapter 7 of 
HUD's ``Basically CDBG'' Guide.\173\
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    \173\ See Department of Housing and Urban Development, Basically 
CDBG for Entitlements, Chapter 7: Public Services (Sept. 2017), 
available at https://www.hud.gov/sites/documents/DOC_16476.PDF.
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    Applicability of Planning and Administrative Costs Cap. Section 
105(a)(13) of the HCDA provides that the payment of reasonable 
administrative costs and carrying charges related to the planning and 
execution of community development and housing activities is an 
eligible activity under Title I.\174\ HUD regulations implement this 
provision for non-Tribal recipients at 24 CFR 570.205 and 570.206 and 
for Tribal recipients at 24 CFR 1003.205 and 206. In addition, HUD 
regulations at 24 CFR 570.200(g) provide that non-Tribal grantees may 
expend no more than 20% of any CDBG annual grant for planning and 
program administrative costs. HUD regulations for Tribal governments 
include the same requirement.\175\ The planning and administrative cap 
is applied annually to CDBG grantees and on a grant-by-grant basis for 
ICDBG grantees.
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    \174\ See 42 U.S.C. 5305(a)(13).
    \175\ See 24 CFR 1003.206.
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    Treasury is implementing this requirement by providing that not 
more than 20% of SLFRF funds used for Title I projects over the course 
of the SLFRF program may be spent on planning and administrative costs, 
in accordance with relevant HUD regulations set forth at 24 CFR 
570.200(g), 570.205, and 570.206 for non-Tribal recipients and at 24 
CFR 1003.205 and 1003.206 for Tribal recipients. Thus, the total amount 
of SLFRF funds used for Title I projects for costs incurred from 
December 29, 2022 through September 30, 2026 must meet the planning and 
administrative costs cap as described above, and compliance with this 
requirement will be assessed separately from existing CDBG and ICDBG 
planning and administrative costs cap compliance for CDBG and ICDBG 
grantees. As discussed above, recipients are not required to obligate 
or expend SLFRF funds on an annual basis and instead must comply with 
obligation and expenditure deadlines over the full period of 
performance, with flexibility to adjust and add programs prior to the 
obligation deadline. Accordingly, this alignment makes the planning and 
administrative costs cap administrable by SLFRF recipients over the 
SLFRF period of performance and coordinates related reporting with 
SLFRF program closeout timelines. For more information on activities 
considered planning and administrative costs for purposes of the 20% 
cap, or more information on the planning and administrative costs cap 
itself, see Chapter 11 of HUD's ``Basically CDBG'' Guide.\176\
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    \176\ Department of Housing and Urban Development, Basically 
CDBG for Entitlements, Chapter 11: Financial Management, Sections 
11.1-11.2 (Sept. 2017), available at https://www.hud.gov/sites/documents/DOC_16480.PDF.
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    While the 20% planning and administrative costs cap will apply to 
recipients using funds for Title I projects, recipients should note 
that the 2022 final rule provides additional flexibility for recipients 
to use SLFRF funds on administrative expenses. In addition to the 
ability to use SLFRF funds for certain types of administrative expenses 
under the public health and negative economic impacts eligible use 
category, Treasury clarified in the 2022 final rule that coverage of 
direct and indirect administrative expenses is a permissible use of 
SLFRF funds under other eligible use categories, with further detail 
provided in Treasury's Compliance and Reporting Guidance. As described 
in the 2022 final rule, recipients can also use SLFRF funds under the 
public health and negative economic impacts category to support a broad 
set of uses to restore and support public sector employment, including 
filling vacancies or adding additional employees up to 7.5% over pre-
pandemic levels. Furthermore, recipients may use earned income from 
interest earned on SLFRF payments to defray administrative expenses of 
the program.\177\ Finally, recipients may use funds under the revenue 
loss eligible use category for the provision of government services, 
which may include various activities, such as administrative expenses.
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    \177\ See Treasury's SLFRF Final Rule FAQ 2.15: ``Can I use 
SLFRF funds to raise public sector wages and hire public sector 
workers?,'' available at https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf.
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    Labor Standards Requirements. Section 110 of the HCDA provides that 
Federal prevailing wage rate requirements in accordance with the Davis-
Bacon Act and other regulations related to contractors and 
subcontractors per 40 U.S.C. 3145 apply to construction work financed 
by Title I.\178\ HUD regulations and guides clarify that these labor 
standards include the Davis-Bacon Act, the Copeland Anti-Kickback Act, 
the Contract Work Hours and Safety Standards Act, and Section 3 of the 
Housing and Urban Development Act of 1968, and apply to CDBG 
projects.\179\ Section 107(e)(2) of the HCDA provides the authority to 
waive the labor standards requirements under section 110 of the HCDA 
for ICDBG grants, and HUD waives applicability of such labor standards 
for ICDBG grantees in 24 CFR 1003.603.
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    \178\ See 42 U.S.C. 5310.
    \179\ See Department of Housing and Urban Development, Basically 
CDBG, Chapter 16: Labor Standards, Sections 16.1.1 (Sept. 2017), 
available at https://www.hud.gov/sites/documents/CDBGCHAPTER16.PDF.
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    Treasury is implementing this requirement by providing that 
prevailing wage rate requirements in accordance with the Davis-Bacon 
Act and other labor standards applied by HUD to construction work under 
Title I apply to Title I projects funded by non-Tribal recipients of 
the SLFRF program, in accordance with HUD regulations for Title I labor 
standards requirements set forth at 24 CFR 570.603 for non-Tribal 
recipients.\180\ SLFRF recipients are

[[Page 65019]]

encouraged to consult HUD guidance that provides general information on 
labor standards and directs CDBG grantees to do the following:
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    \180\ In other SLFRF eligible use categories, labor standards 
requirements pursuant to the Davis-Bacon Act generally do not apply 
to projects funded solely with SLFRF funds (except for certain 
SLFRF-funded construction projects undertaken by the District of 
Columbia). See Treasury's SLFRF Final Rule FAQ 6.15: ``Are eligible 
water, sewer, and broadband infrastructure projects, eligible 
capital expenditures under the public health and negative economic 
impacts eligible use category, and eligible projects under the 
revenue loss eligible use category subject to the Davis-Bacon 
Act?,'' available at https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf.
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     Include all applicable labor standards language and the 
appropriate wage decision in construction bid and contract 
documents,\181\
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    \181\ See Department of Housing and Urban Development, Basically 
CDBG for Entitlements, Chapter 16: Labor Standards, Section 16.1.2 
(Sept. 2017), available at https://www.hud.gov/sites/documents/CDBGCHAPTER16.PDF.
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     Enforce labor standards requirements during construction, 
such as good construction management techniques and issuance of notices 
to proceed and payments tied to compliance with the labor requirements, 
payroll reviews, and worker interviews,\182\
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    \182\ See id. at Section 16.1.3.
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     Pay any wage restitution promptly where underpayments of 
wages have occurred and are found during payroll or other reviews,\183\ 
and
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    \183\ See id. at Section 16.1.4.
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     Maintain documentation to demonstrate compliance with 
labor standards requirements such as bid and contract documents, 
payroll forms, signed statements of compliance, and documentation of 
on-site job interviews.\184\
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    \184\ See id. at Section 16.1.5.
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    Consistent with the ICDBG program, these labor standards will not 
apply to Title I projects funded by Tribal government recipients of 
SLFRF funds.\185\ For more information on Title I labor standards 
requirements, see Chapter 16.1.1 of HUD's ``Basically CDBG'' 
Guide,\186\ HUD's ``Davis-Bacon and Labor Standards: Agency/Contractor 
Guide,'' \187\ and HUD's ``Davis-Bacon and Labor Standards: Contractor 
Guide Addendum.'' \188\
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    \185\ See 24 CFR 1003.603.
    \186\ See Department of Housing and Urban Development, Basically 
CDBG for Entitlements, Chapter 16: Labor Standards, Sections 16.1.1 
(Sept. 2017), available at https://www.hud.gov/sites/documents/CDBGCHAPTER16.PDF.
    \187\ See Department of Housing and Urban Development, Davis-
Bacon and Labor Standards: Agency Contractor Guide (Aug. 2022), 
available at https://files.hudexchange.info/resources/documents/Davis-Bacon-and-Labor-Standards-Agency-and-Contractor-Guide.pdf.
    \188\ See id.
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    BEAD Program Requirements. The 2023 CAA provides that the 
requirements of the Broadband Equity, Access, and Deployment (BEAD) 
program as outlined in section 60102 of the Infrastructure Investment 
and Jobs Act (IIJA) apply to recipients undertaking projects with SLFRF 
funds under Title I that relate to broadband infrastructure.\189\ 
Recipients should refer to program guidance, guides, and FAQs provided 
by the Department of Commerce's National Telecommunications and 
Information Administration for more information about BEAD 
requirements.\190\
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    \189\ See 42 U.S.C. 802(c)(5)(C)(iii)(II) and 
803(c)(6)(B)(iii)(II).
    \190\ See Section 1.2 of NTIA's BEAD Program ``Letter of Intent 
and Initial Planning Funding Grant Application Guidance,'' available 
at https://broadbandusa.ntia.doc.gov/sites/default/files/2022-05/BEAD%20Planning%20Application%20Guidance.pdf.
---------------------------------------------------------------------------

    As outlined in the 2022 final rule, in addition to broadband-
related activities available under eligible Title I projects, 
recipients also may undertake broadband infrastructure projects to make 
necessary investments to expand affordable access to broadband 
internet. Broadband projects available under the broadband eligible use 
category are not subject to BEAD program requirements and there is no 
limit on the amount of SLFRF funds a recipient may dedicate to such 
projects.
    Environmental Requirements. The 2023 CAA provides that the 
requirements of NEPA apply to recipients' use of SLFRF funds for Title 
I projects. Accordingly, and for the reasons discussed above, 
recipients using funds for Title I projects must satisfy NEPA 
environmental review requirements based on the procedures set forth in 
section 104(g) of the HCDA, as implemented at 24 CFR part 58, and as 
adapted to the SLFRF program by Treasury.
    Section 104(g) of the HCDA authorizes the HUD Secretary, in lieu of 
the environmental protection procedures otherwise applicable pursuant 
to NEPA, to promulgate regulations providing for the release of funds 
for particular projects to recipients of Title I assistance who assume 
all of the responsibilities for environmental review, decision making, 
and action pursuant to NEPA. Section 104(g) further provides that the 
HUD Secretary shall approve the release of funds for projects subject 
to these procedures 15 days after the grantee has requested release of 
funds and submitted a certification. The HUD Secretary's approval of 
the certification is deemed to satisfy her responsibilities under NEPA 
and other provisions of law identified in the regulations insofar as 
those responsibilities relate to the release of funds for projects 
covered by the certification. HUD regulations at 24 CFR part 58 provide 
additional substantive and procedural information for compliance with 
this provision, including providing that certain projects do not 
require grantees to request release of funds or submit a certification.
    Before recipients use SLFRF funds for Title I projects that trigger 
the environmental compliance process contemplated by Title I and 24 CFR 
part 58, the SLFRF recipients must comply with the environmental review 
requirements set forth in the HUD statute and regulations, submit a 
certification to Treasury, and receive approval. Because SLFRF funds 
have already been distributed to recipients, recipients are not 
required to submit a request for release of funds. As noted above, 
under Title I, CDBG grantees directly or indirectly assume all 
responsibilities for environmental review, decision making, and action 
pursuant to NEPA, and this approach also applies to recipients using 
the SLFRF funds for Title I projects. Following issuance of this 
interim final rule, Treasury will publish guidance describing the 
environmental compliance process in greater detail, including the 
certification's contents and the process for submitting it.
    As noted above, under the regulations at 24 CFR part 58, certain 
projects do not require HUD grantees to submit a certification or 
obtain HUD's approval for funds to be released for a particular 
project. Similarly, SLFRF recipients are not required to submit 
certifications or obtain Treasury approval for a Title I project that 
either is:
     An ``exempt activity'' as contemplated by 24 CFR 58.34(a), 
or
     ``Categorically excluded'' and not subject to 24 CFR 58.5, 
as contemplated by 24 CFR 58.35(b), provided that the extraordinary 
circumstances described in 24 CFR 58.35(c) are not present.
    If a project meets either of the two criteria above, recipients may 
begin using SLFRF funds for the project right away. Recipients should 
refer to HUD's definition of extraordinary circumstances provided at 24 
CFR 58.2(a)(3).\191\ If a recipient determines

[[Page 65020]]

that its project presents extraordinary circumstances, the recipient 
must submit a certification to Treasury and receive approval prior to 
using SLFRF funds for the project, as will be discussed in Treasury's 
forthcoming guidance regarding the environmental compliance process.
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    \191\ 24 CFR 58.2(a)(3) defines extraordinary circumstances as a 
situation in which an environmental assessment (EA) or environmental 
impact statement (EIS) is not normally required but, due to unusual 
conditions, an EA or EIS is appropriate. Indicators of unusual 
conditions are: (i) actions that are unique or without precedent; 
(ii) actions that are substantially similar to those that normally 
require an EIS; (iii) actions that are likely to alter existing HUD 
policy or HUD mandates; or (iv) actions that, due to unusual 
physical conditions on the site or in the vicinity, have the 
potential for a significant impact on the environment or in which 
the environment could have a significant impact on users of the 
facility.
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    To claim an activity or project as exempt pursuant to 24 CFR 
58.34(a), recipients must document in writing their determination that 
the activity or project is exempt and meets the conditions specified 
for such exemption. For categorically excluded projects, recipients are 
required to maintain a well-organized written record of the process and 
determinations, including those related to the evaluation of whether 
the project presents extraordinary circumstances, made with respect to 
the categorical exclusion, which HUD refers to as an Environmental 
Review Record. Treasury will provide additional information on the 
Environmental Review Record requirements following issuance of this 
interim final rule.
    Inapplicable sections of Title I. This the following sections of 
Title I do not apply to SLFRF-funded Title I projects:

 Section 103 of the HCDA (authorizing HUD to make grants)
 Sections 104(a)-(f), (h)-(j), and (l)-(m) of the HCDA (certain 
CDBG grant prerequisites, including consolidated plan, annual plan, 
plan publication, citizen participation, and associated certifications; 
performance and evaluation submission to HUD; revolving loan fund 
distributions; program income provisions applicable to certain CDBG 
grantees; eligible CDBG grantees; and community development plans)
 Sections 105(b), (d), (e), and (g) of the HCDA (services 
provided by HUD; HUD directive to establish regulations and guidance)
 Sections 106-109 of the HCDA (HUD allocation and distribution 
requirements; other grant programs under Title I; and nondiscrimination 
requirements)
 Sections 111-122 of the HCDA (noncompliance remedies; other 
grant authorizations; administrative requirements including as relates 
to reporting, duplication of benefits, and agency consultation; 
interstate agreements; transition provisions; emergency funding 
provisions)

    As noted above and discussed further below, Treasury has determined 
not to apply the foregoing requirements of Title I because such 
requirements conflict with the existing SLFRF framework or otherwise 
are likely to preclude recipients from exercising the additional 
authorities provided by the statute. HUD regulations associated with 
the statutory provisions noted above also do not apply to recipients 
using SLFRF funds for Title I projects.
    Prerequisite for Receiving, and Distribution of, CDBG Grants. 
Generally, the requirements under section 104 of the HCDA noted above 
are prerequisites for receiving annual CDBG allocations or relate to 
how HUD may distribute funds to its grantees. As discussed above, the 
planning prerequisites and associated certifications conflict with the 
SLFRF program framework under which recipients already have funds in 
hand and are authorized to use funds for discrete projects, rather than 
being required to design an annual process for how funding will be 
used. Furthermore, to require recipients to prepare consolidated and 
annual plans and undergo a public review process likely would preclude 
recipients from exercising the additional authorities provided by the 
statute, under which recipients have limited time remaining to 
determine how to obligate and expend funds. While such requirements 
will not apply to SLFRF funds used for Title I projects, Treasury 
encourages recipients to engage with their communities on the projects 
they are undertaking with SLFRF funds in general. For example, certain 
SLFRF recipients are required to publish and submit to Treasury a 
Recovery Plan performance report that must be posted on an easily 
discoverable web page on the recipient's public-facing website. The 
Recovery Plan provides the public and Treasury both retrospective and 
prospective information on the projects recipients are undertaking or 
planning to undertake with program funding, and how they are planning 
to ensure program outcomes are achieved in an effective, efficient, and 
equitable manner.\192\
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    \192\ Treasury publishes the Recovery Plans submitted by 
recipients each year on its website. For additional detail on 
Treasury's guidance on SLFRF recipients' compliance and reporting 
responsibilities, see https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/recipient-compliance-and-reporting-responsibilities.
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    HUD Programmatic Authority. Certain additional provisions are not 
applicable to the SLFRF program because they conflict with the SLFRF 
framework in that they are only relevant in the context of HUD's 
programmatic authorities rather than Treasury's administration of Title 
I projects and recipients' use of funds for the eligible projects and 
activities that the statute makes available. For example, sections 108, 
111, 112, and 113 of the HCDA provide certain authorities and impose 
certain responsibilities on HUD that it would not make sense to impose 
on Treasury's administration of Title I projects, including those 
related to providing loan guarantees, remedying noncompliance, 
providing grants to settle outstanding urban renewal loans, 
promulgating regulations, and reporting.
    Question 1: What, if any, additional clarification should Treasury 
provide as it relates to determining eligibility of projects under the 
Title I eligible use, or complying with program requirements such as 
CDBG national objectives or spending caps?
    Question 2: What additional information or clarification is needed 
for recipients to understand Treasury's guidance on how recipients can 
use loans and revolving loan funds to support Title I eligible uses?
    Question 3: What if any additional flexibilities would benefit 
recipients in terms of the use of revolving loan funds across the SLFRF 
program or for particular uses in the Title I projects eligible use 
category? Please include a discussion of how additional flexibilities 
would comply with the December 31, 2024 obligation and December 31, 
2026 expenditure deadlines.
    Question 4: What additional information or clarification is needed 
for recipients to understand Treasury's guidance on how to comply with 
environmental review requirements for Title I projects?
    Question 5: What activities not already eligible under the public 
health and negative economic impacts eligible use category, as 
articulated in the 2022 final rule, are recipients interested in 
undertaking under the Title I projects eligible use category?

III. Discussion of Revenue Loss and Program Administration Provisions

    The 2023 CAA codified the ``standard allowance'' discussed in the 
2022 final rule under the revenue loss eligible use category. The 
section that follows discusses the revenue loss eligible use category 
as described in the 2022 final rule, as well as the program 
administration provisions to support recipients in understanding how 
this interim final rule will interact with previously established 
elements of the SLFRF program. As noted above, the 2023 CAA generally 
did not alter the existing eligible uses articulated in the 2022 final 
rule. Recipients may continue to use SLFRF funds for the eligible uses 
described under the 2022 final rule.

[[Page 65021]]

A. Revenue Loss

    Summary of the 2022 final rule: As stated above, the ARPA amended 
the Social Security Act to provide that SLFRF funds may be used ``for 
the provision of government services to the extent of the reduction in 
revenue of such . . . government due to the COVID-19 public health 
emergency relative to revenues collected in the most recent full fiscal 
year of the . . . government prior to the emergency.'' In the 2022 
final rule, Treasury provided two options for how recipients may 
determine their amount of revenue loss. A recipient may claim a 
standard allowance of up to $10 million in total, not to exceed the 
recipient's allocation, for the entire period of performance, or 
calculate revenue loss on an annual basis according to the four-step 
formula described in the 2022 final rule. The 2022 final rule also 
provided additional clarifications, including how recipients that are 
determining revenue loss according to the formula should calculate 
general revenue and select their calculation date. The 2022 final rule 
maintained Treasury's definition of government services articulated in 
the 2021 interim final rule which provided that, generally speaking, 
services provided by recipient governments are ``government services,'' 
unless Treasury has stated otherwise.
    The 2022 final rule also noted that Treasury intended to amend its 
reporting forms to provide a mechanism for recipients to make a one-
time, irrevocable election to utilize either the revenue loss formula 
or the standard allowance. Treasury's guidance and Final Rule FAQs 
included directions for recipients to indicate this choice in their 
Project and Expenditure Reports due April 30, 2022, and as described in 
subsequent guidance, recipients were able to update their revenue loss 
election, as appropriate, in future reporting cycles through the April 
2023 reporting period. Upon update, any prior revenue loss election was 
superseded.
    The Consolidated Appropriations Act, 2023: The 2023 CAA provided 
SLFRF funds may be used ``for the provision of government services up 
to an amount equal to the greater of--
    (i) the amount of the reduction in revenue of such . . . government 
due to the COVID-19 public health emergency relative to revenue 
collected in the most recent full fiscal year of such . . . government 
prior to the emergency; or:
    (ii) $10,000,000.''
    Thus, the 2023 CAA codified the framework articulated in the 2022 
final rule that recipients may determine their revenue loss by 
calculating revenue loss according to the formula or claiming up to $10 
million, not to exceed a recipient's allocation.
    Recipients need not make any changes to their current revenue loss 
determination and may continue with their previous determination. 
Recipients who would like to update their revenue loss determination 
will be able to update their revenue loss determination, as 
appropriate, through the April 2025 reporting period. Upon update, any 
prior revenue loss election will be superseded. Recipients continue to 
be required to employ a consistent methodology across the period of 
performance (i.e., choose either the standard allowance or the full 
formula) and may not elect one approach for certain reporting years and 
the other approach for different reporting years.
    Recipients must still communicate to Treasury the method for 
determining revenue loss, calculating according to the formula or 
claiming up to $10,000,000, not to exceed the recipient's allocation.

B. Program Administration Provisions

1. Timeline for Use of SLFRF Funds
    Summary of the 2022 final rule: In the 2022 final rule, Treasury 
maintained the timeline for using SLFRF funds outlined in the 2021 
interim final rule. Recipient may only use funds to cover costs 
incurred during the period beginning March 3, 2021, and ending December 
31, 2024. The final rule provided that a cost shall be considered to 
have been incurred if the recipient has incurred an obligation with 
respect to such cost. Under the 2022 final rule, recipients must expend 
all funds by December 31, 2026. The 2023 CAA did not alter these 
timelines for existing eligible uses described in the 2022 final rule. 
The eligible uses added by the 2023 CAA are subject to slightly 
different treatment, as discussed below.
    Consolidated Appropriations Act, 2023: For the three eligible uses 
added by the 2023 CAA (emergency relief from natural disasters, Surface 
Transportation projects, and Title I projects), recipients may use 
SLFRF funds to cover costs incurred beginning December 29, 2022, which 
is the date that the 2023 CAA was enacted. Consistent with the 
discussion in the 2021 interim final rule with respect to the original 
eligible uses, SLFRF funds are available for the new eligible uses on a 
prospective basis. Similarly, consistent with the 2021 interim final 
rule, permitting recipients to incur costs beginning December 29, 2022, 
provides flexibility for recipients that may have been incurring costs 
in anticipation of the issuance of this interim final rule. Treasury 
considered adopting March 3, 2021, as the date that recipients may 
begin incurring costs under the new eligible uses but declined to do so 
because these eligible uses are available on a prospective basis and 
because March 3, 2021, would be inconsistent with the non-supplant 
requirement applicable to the majority of projects and activities 
available under the new eligible uses.\193\
---------------------------------------------------------------------------

    \193\ The statute's application of the non-supplant provision to 
the Surface Transportation projects eligible use category and Title 
I projects eligible use category but not to the emergency relief 
from natural disasters eligible use category makes sense only if 
recipients may not use SLFRF funds to cover expenses incurred prior 
to the enactment of the 2023 CAA. The concern that recipients would 
supplant, after the date of enactment, funds previously dedicated to 
eligible uses is not particularly relevant in the case of natural 
disasters, which are generally unexpected and impose extraordinary 
costs on state, local, and Tribal governments.
    The use of December 29, 2022 is also supported by comparing the 
2023 CAA amendments to the Infrastructure Investment and Jobs Act 
(IIJA) amendments to the ARPA from November 2021. In the IIJA, 
Congress included a ``clarification of authority'' to use SLFRF 
funds to meet match requirements for authorized Bureau of 
Reclamation water projects. The clarification stated that the 
amendments took effect ``as if included in the enactment'' of the 
ARPA. Accordingly, in the final rule, Treasury incorporated this 
eligible use and applied the March 3, 2021 cost incurred date that 
applied to all the other eligible uses in the ARPA. The absence of 
similar language in the 2023 CAA suggests Congress did not intend to 
apply the same retroactive approach.
---------------------------------------------------------------------------

    As discussed earlier in this interim final rule, under the 
emergency relief from natural disasters eligible use category, 
recipients must comply with the December 31, 2024, obligation deadline 
and the December 31, 2026, expenditure deadline articulated in the 2022 
final rule. For Surface Transportation projects and Title I projects, 
funds must be obligated by December 31, 2024 and must be expended by 
September 30, 2026. This expenditure deadline is three months earlier 
than the December 31, 2026, expenditure deadline that applies to the 
other eligible uses.
    The 2022 final rule provides that a cost is considered to have been 
incurred for purposes of the December 31, 2024, statutory deadline if 
the recipient has incurred an obligation with respect to such cost by 
December 31, 2024. The 2022 final rule defines an obligation as ``an 
order placed for property and services and entering into contracts, 
subawards, and similar transactions that require payment.'' Treasury is 
maintaining this definition of obligation for the new eligible uses 
provided in the 2023 CAA.

[[Page 65022]]

2. Use of Funds for Match or Cost-Share Requirements
    Summary of the 2022 final rule: In the 2022 final rule, Treasury 
discussed its determination that SLFRF funds available for the 
provision of government services, up to the amount of the recipient's 
reduction in revenue due to the public health emergency, generally may 
be used to meet the non-Federal cost-share or matching requirements of 
other Federal programs. The final rule also clarified that SLFRF funds 
beyond those that are available under the revenue loss eligible use 
category for the provision of government services may not be used to 
meet the non-Federal match or cost-share requirements of other Federal 
programs other than as specifically provided for by statute. For 
example, as discussed in the 2022 final rule, section 40909 of the 
Infrastructure Investment and Jobs Act provides that SLFRF funds may be 
used to meet the non-Federal match requirements of any authorized 
Bureau of Reclamation project, and section 60102 of the Infrastructure 
Investment and Jobs Act provides that SLFRF funds may be used to meet 
the non-Federal match requirements of the broadband infrastructure 
program authorized under that section. See the 2022 final rule for 
further discussion.
    The Consolidated Appropriations Act, 2023: As discussed above, the 
2023 CAA did not alter the existing eligible uses of SLFRF funds. 
Recipients may still use SLFRF funds in the revenue loss eligible use 
category to meet non-Federal matching requirements, as described in the 
2022 final rule. As described in the Surface Transportation projects 
section of this interim final rule, the 2023 CAA provided that 
recipients may use SLFRF funds for non-Federal matching requirements 
for certain Surface Transportation programs. As described in the Title 
I projects section of this interim final rule, the 2023 CAA provided 
that recipients may use SLFRF funds for Title I projects, which 
includes using funds for non-Federal cost share and matching 
requirements of a Federal financial assistance program in support of 
activities that would be eligible under the CDBG and ICDBG programs. 
See the sections titled Surface Transportation projects and Title I 
projects of this interim final rule for further information.
3. Reporting
    Summary of the 2022 final rule: The 2022 final rule maintained 
Treasury's authority to collect information from recipients through 
requested reports and any additional requests for information. The 2022 
final rule also maintained Treasury's flexibility to extend or 
accelerate reporting deadlines and to modify requested content for the 
Interim Report, Project and Expenditure reports, and Recovery Plan 
Performance reports. Since the publication of the 2021 interim final 
rule, Treasury issued supplementary reporting guidance in the 
Compliance and Reporting Guidance and in the User Guide: Treasury's 
Portal for Recipient Reporting (User Guide).\194\ Treasury continues to 
issue updated guidance prior to each reporting period clarifying any 
modifications to requested report content.
---------------------------------------------------------------------------

    \194\ U.S. Department of the Treasury, Recipient Compliance and 
Reporting Responsibilities (Nov. 5, 2021), https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/recipient-compliance-and-reporting-responsibilities.
---------------------------------------------------------------------------

    The Consolidated Appropriations Act, 2023: Generally, recipients 
using SLFRF funds for the eligible uses provided in the 2023 CAA will 
be required to report on these uses of funds in their Project and 
Expenditure reports and Recovery Plan Performance reports. For example, 
recipients using funds to provide emergency relief from natural 
disasters will generally be required to provide information regarding 
the declaration or designation associated with a natural disaster and 
for mitigation activity expenditures greater than $1 million, a written 
justification. Recipients using funds for Surface Transportation 
projects under Pathway One will generally be required to confirm which 
DOT program they are directing funds and attest to meeting additional 
statutory requirements like supplement, not supplant and state of good 
repair. Recipients using funds for Surface Transportation projects 
under Pathway Two will generally be required to provide additional 
information regarding the parameters of the streamlined framework and 
attest to meeting additional statutory requirements like supplement, 
not supplant and state of good repair. Recipients using funds for Title 
I projects will generally be required to provide information regarding 
the category of CDBG activities, the primary objective, and the 
national objectives, and attest to meeting additional statutory 
requirements like supplement, not supplant and environmental 
certifications. Like all eligible use categories in the SLFRF program, 
recipients will be required to provide general financial information 
and a project description for the new eligible uses categories 
discussed in this interim final rule. Treasury intends to update its 
reporting forms, Compliance and Reporting Guidance, and User Guide to 
further describe recipients' reporting responsibilities for SLFRF funds 
directed toward these eligible uses.
    As described above, Treasury is delegating authority to DOT to 
oversee and administer Surface Transportation projects under Pathway 
One. As such, recipients using SLFRF funds for such projects will be 
required to comply with the relevant existing DOT reporting 
requirements associated with the Surface Transportation project that is 
receiving DOT funding for which they are adding SLFRF funds. DOT may 
provide additional guidance, as appropriate, for recipients using SLFRF 
funds under Pathway One for a Surface Transportation project that is 
receiving funding from DOT. Recipients using SLFRF funds under Pathway 
One will also be required to report certain information to Treasury, 
including the amount of SLFRF funds directed toward Surface 
Transportation projects and Title I projects to ensure that recipients 
comply with the cap on funds associated with these eligible use 
categories.
    Recipients using SLFRF funds under Pathway Two for a Surface 
Transportation project that is not receiving funding from DOT and 
funded solely with SLFRF funds will only have reporting 
responsibilities to Treasury.
    Under Pathway Three, recipients will be required to comply with the 
relevant existing DOT reporting requirements associated with the 
Surface Transportation project which they are using SLFRF funds for 
non-Federal share requirements. Recipients will also be required to 
report certain information to Treasury, including the amount of SLFRF 
funds directed toward Surface Transportation projects and Title I 
projects to ensure that recipients comply with the cap on funds 
associated with these eligible use categories.
4. Uniform Guidance
    Summary of the 2022 final rule: The 2022 final rule states that 
recipients of SLFRF funds are subject to the provisions of the Uniform 
Guidance (2 CFR part 200) from the date of award to the end of the 
period of performance on December 31, 2026, unless otherwise specified 
in this rule or program specific guidance.
    The Consolidated Appropriations Act, 2023: Consistent with the 2022 
final rule, recipients using SLFRF funds, whether for the eligible uses 
described in the 2022 final rule or the eligible uses described in this 
interim final rule, are subject to the provisions of the Uniform

[[Page 65023]]

Guidance, unless stated otherwise by Treasury.\195\ Recipients using 
SLFRF for Surface Transportation projects and Title I projects, 
respectively, must also comply with the administrative requirements 
described above in the Surface Transportation projects and Title I 
projects sections.
---------------------------------------------------------------------------

    \195\ See FAQ Section 13. ``Uniform Guidance'' U.S. Department 
of the Treasury, Coronavirus State and Local Fiscal Recovery Funds 
Final Rule: Frequently Asked Questions (Apr. 2023), https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf.
---------------------------------------------------------------------------

IV. Comments and Effective Date

    This interim final rule is being issued without advance notice and 
public comment to allow for immediate implementation of the changes to 
the SLFRF program resulting from the amendments made by the State, 
Local, Tribal, and Territorial Fiscal Recovery, Infrastructure, and 
Disaster Relief Flexibility Act, part of the Consolidated 
Appropriations Act, 2023, Public Law 117-328 (Dec. 29, 2022). 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.'' This interim final rule implements 
statutory conditions on the eligible uses of the SLFRF funds and 
addresses the 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.'' 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 this interim final rule. These comments must be submitted on 
or before November 20, 2023.

V. Regulatory Analyses

Executive Orders 12866, 13563, and 14094

Regulatory Impact Assessment
    This interim final rule is a ``significant regulatory action'' 
under section 3(f)(1) of Executive Order 12866 for the purposes of 
Executive Orders 12866 and 13563 because it may shift how state, local, 
and Tribal governments spend SLFRF funds annually by $200 million or 
more, with an effect on the economy.
    As explained below, this regulation meets a substantial need: 
ensuring that recipients--states, territories, Tribal governments, and 
local governments--of SLFRF funds fully understand the requirements and 
parameters of the program as set forth in the Social Security Act and 
are able to deploy funds in a manner that best reflects Congress' 
intent to provide necessary relief to recipient governments adversely 
impacted by the COVID-19 public health emergency. Furthermore, as 
required by Executive Order 12866 as amended, Treasury has weighed the 
costs and benefits of this interim final rule and varying alternatives 
and has reasonably determined that the benefits of this interim final 
rule to recipients and their communities far outweigh any costs. The 
rule has been reviewed by the Office of Management and Budget (OMB) in 
accordance with Executive Order 12866 as amended.
Executive Orders 12866, 13563, and 14094
    Under Executive Order 12866, as amended by Executive Order 14094, 
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 as 
amended defines a significant regulatory action as an action likely to 
result in a rule that may, among other things, have an annual effect on 
the economy of $200 million or more. This interim final rule may shift 
spending decisions by recipient governments by $200 million, therefore, 
it is subject to review by OMB under section 3(f)(1) of Executive Order 
12866 as amended.
    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 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.''
    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 Orders 12866, 
13563, and 14094. This Regulatory Impact Analysis discusses the need 
for regulatory action, the potential benefits, and the potential costs. 
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.
Need for Regulatory Action
    This interim final rule implements new eligible uses for the $350 
billion SLFRF program provided in the 2023 CAA, which Congress passed 
to provide additional flexibility in how state, local, and Tribal 
governments respond to the unique needs of their communities. As the 
agency charged with execution of these programs, Treasury has concluded 
that this interim final rule is needed to ensure that recipients of 
SLFRF funds fully understand the requirements and parameters of the 
program as modified by the 2023 CAA and deploy funds in a manner that 
best reflects Congress' mandate for targeted fiscal relief. This 
interim final rule provides additional flexibility in the use of $350 
billion in grant funds already disbursed from the Federal government to 
state, local, and Tribal governments. As noted earlier,

[[Page 65024]]

Treasury has disbursed nearly all of the $350 billion appropriated 
SLFRF funds. 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 state, local, and Tribal 
governments while maintaining their flexibility to respond to local 
needs; and limiting administrative burdens.
Analysis of Benefits
    Relative to a pre-2023 CAA baseline, no additional resources are 
provided to state, local, and Tribal governments under the SLFRF 
program. Instead, state, local, and Tribal governments will have 
additional flexibility in how they use available SLFRF funds, that have 
already been disbursed, with the option to pursue additional eligible 
uses under this interim final rule to meet the needs of their 
communities. Treasury believes that this additional flexibility may 
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.
    This interim final rule provides benefits by implementing the new 
eligible use categories, as defined in the 2023 CAA: providing 
emergency relief from natural disasters or the negative economic 
impacts of natural disasters, using funds for Surface Transportation 
projects, and using funds for Title I projects.
    These benefits are achieved in this interim final rule through a 
broadly flexible approach that sets clear guidelines on these 
additional eligible uses of SLFRF funds and provides state, local, and 
Tribal government officials discretion to direct SLFRF funds to areas 
of greatest need within their jurisdiction, within available eligible 
use categories. While preserving recipients' overall flexibility, this 
interim final rule includes several provisions that implement statutory 
requirements and will help support use of SLFRF funds to achieve the 
intended benefits. Preserving flexibility for recipients not only 
serves an important public policy goal by allowing them to meet 
particularized and diverse needs of their local communities but also 
enhances the economic benefits of this interim final rule by allowing 
recipients to choose eligible uses of funds that provide the highest 
utility in their jurisdictions.
    The remainder of this section clarifies how Treasury's approach to 
key provisions in this interim final rule will contribute to greater 
realization of benefits from the program. Treasury considered issuing 
guidance rather than an interim final rule; however, Treasury 
determined that issuing an interim final rule that amends the 
regulatory text of the 2022 final rule was appropriate to bring the 
regulatory requirements in line with the 2023 CAA.
Emergency Relief From Natural Disasters
    The eligible use category for providing emergency relief from 
natural disasters or the negative economic impacts of natural disasters 
covers a range of eligible uses of funds, including temporary emergency 
housing, food assistance, financial assistance for lost wages, other 
immediate needs, and mitigation activities. Treasury has structured 
this eligible use to minimize recipient administrative burden while 
also maintaining flexibility for recipients to provide emergency relief 
to address the particular needs of their communities after experiencing 
a natural disaster or prior to a natural disaster that is expected to 
occur imminently, or to avert the threat of a future natural disaster. 
In this interim final rule, Treasury enumerated eligible uses of SLFRF 
funds to provide emergency relief from the physical and negative 
economic impacts of natural disasters. Some of these enumerated 
eligible uses include temporary emergency housing, food assistance, 
financial assistance for lost wages, emergency protective measures, 
debris removal, repairing damage to public infrastructure, home repairs 
for uninsured primary residences, cash assistance, and mitigation 
activities to avert the potential impacts of a future natural disaster. 
In addition to the enumerated eligible uses, Treasury provides a 
framework whereby recipient may identify a natural disaster and 
identify emergency relief that responds to the physical or negative 
economic impacts of a natural disaster. The emergency relief must be 
related and reasonably proportional to the to the impact identified. By 
enumerating eligible uses, Treasury is reducing administrative burden 
for recipients through a clear list of uses of SLFRF funds they may 
consider providing as appropriate. By providing a framework for 
recipients to design their own emergency relief, Treasury is providing 
flexibility for recipients to direct SLFRF funds to the needs of their 
unique communities.
Surface Transportation Projects
    In the eligible use category Surface Transportation projects, 
Treasury provides three pathways under which recipients may direct 
SLFRF funds towards Surface Transportation projects, subject to the cap 
on SLFRF funds for this eligible use. First, recipients may use SLFRF 
funds under Pathway One for Surface Transportation projects receiving 
funding from DOT. Recipients who use SLFRF funds for these projects 
must comply with all related DOT requirements for these projects. 
Second, recipients may use SLFRF funds under Pathway Two for Surface 
Transportation projects, that are not receiving funding from DOT, 
whether or not SLFRF funds are blended with other sources of funds. 
This second pathway is available to all SLFRF recipients, including 
those that do not routinely apply for or receive funding directly from 
DOT. Treasury is articulating a streamlined framework for recipients to 
undertake certain projects (1) fit the description of ``eligible 
projects'' under the RAISE grant program as described in the 2023 
Notice of Funding Opportunity; (2) contribute SLFRF funds no greater 
than $10 million, and (3) with an entire project scope that is limited 
to actions or activities that typically do not have a significant 
environmental impact, absent unusual circumstances, as described in 23 
CFR 771.116(b), 771.117(b), and 771.118(b). Recipients that use SLFRF 
funds for these projects must comply certain requirements, as 
articulated in the Surface Transportation projects section, and only 
report these projects to Treasury. Recipients seeking to use SLFRF 
funds for Surface Transportation projects under Pathway Two outside of 
the parameters of the streamlined framework must submit a notice of 
intent to Treasury. Treasury will use the notices of intent it receives 
along with comments on this interim final rule to develop a pathway for 
these types of projects. Third, recipients may use SLFRF funds under 
Pathway Three for non-Federal share requirements for certain DOT 
programs, as well as to repay TIFIA loans. By providing three pathways 
for recipients to pursue Surface Transportation projects with SLFRF 
funds, Treasury is providing flexibility for recipients to use SLFRF 
funds for DOT projects they are already pursuing and for recipient to 
also pursue new projects, particularly for those recipients that do not 
have any existing projects funded by DOT, subject to the requirements 
outlined in the Surface Transportation projects section.

[[Page 65025]]

Title I Projects
    The Title I projects eligible use category discusses how recipients 
may direct SLFRF funds toward Title I projects, subject to the cap on 
funds for this eligible use category. In this eligible use category, 
Treasury has provided that recipients may use SLFRF funds for CDBG and 
ICDBG projects, in alignment with the applicable administrative 
provisions. By aligning with CDBG and ICDBG, programs with which many 
recipients already are familiar, Treasury is reducing administrative 
burden. Treasury also discusses the CDBG and ICDBG provisions that 
apply to SLFRF funds. By analyzing which provisions are applicable to 
the unique requirements of the SLFRF program, including modifying 
certain requirements for this eligible use category in light of the 
SLFRF period of performance and the statutory requirement that SLFRF 
funds be obligated by December 31, 2024 and expended by September 30, 
2026, Treasury is further reducing administrative burden for 
recipients.
Analysis of Costs
    This regulatory action will not generate significant administrative 
costs relative to a pre-2023 CAA baseline. This interim final rule may 
result in state, local, and Tribal governments shifting SLFRF funds to 
new eligible uses included in the Social Security Act but does not 
result in additional funds being disbursed to SLFRF recipients. In 
addition, SLFRF recipients generally have already established processes 
required to administer their SLFRF funds, oversee subrecipients and 
beneficiaries, and file periodic reports with Treasury. As such, 
Treasury expects that the total costs required to administer SLFRF 
funds will not change significantly. Treasury expects that the 
administrative burden associated with the SLFRF program will remain 
moderate for a grant program of its size. Under the final rule 
implementing the SLFRF program as enacted in the ARPA, Treasury noted 
administrative costs as a generally allowable use of SLFRF funds, which 
defrays administrative expenses to recipients that may be needed to 
comply with reporting requirements. Treasury is maintaining this 
approach to administrative costs in this interim final rule. Treasury 
has also made clear in guidance that SLFRF funds may be used to cover 
certain expenses related to administering programs established using 
SLFRF funds.

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 modified by the 2023 CAA. 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 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.'' This interim 
final rule implements statutory conditions on the eligible uses of the 
SLFRF grants and addresses 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 
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 2023 CAA amends sections 602 and 603 of the Social 
Security Act to make SLFRF available to provide emergency relief from 
natural disasters or their negative economic impacts, along with 
authority to use funds for an extensive list of eligible uses related 
to infrastructure, incorporated into the Social Security Act by cross-
reference to other statutory provisions. As noted above, Congress 
authorized use of funds for emergency relief. American Fed'n of Gov't 
Employees v. Block, 655 F.2d 1153, 1156 (D.C. Cir. 1981). Expeditious 
promulgation of the interim final rule would make these funds available 
to provide emergency relief to natural disasters more quickly and would 
avoid a delay that would be contrary to the public interest. In 
addition, SLFRF funds are available to cover costs incurred through 
December 31, 2024. Following the ordinary requirements of notice-and-
comment rulemaking would result in the passage of a significant amount 
of time before recipients are able to use funds for time sensitive 
needs related to natural disaster relief, and it would provide 
recipients a very limited amount of time to plan for and finance newly 
eligible infrastructure projects before the obligation deadline arrives 
in the following year. By linking the effectiveness of the amendments 
with the promulgation of a rule or issuance of guidance on a 60-day 
timeline, as provided in the 2023 CAA, Congress ``clearly envisioned 
very speedy adoption of the mandated changes.'' Petry v. Block, 737 
F.2d 1193, 1200 (D.C. Cir. 1984). Further, Congress, ``by setting an 
effective date so close to the date of enactment, expressed its belief 
that implementation of the amendments to the [program] was urgent.'' 
Philadelphia Citizens in Action v. Schweiker, 669 F.2d 877, 884-885 (3d 
Cir. 1982) (finding good cause under circumstances, including statutory 
time limits, where APA procedures would have been ``virtually 
impossible,'' like a circumstance in which an agency promulgated a 
regulation to implement a statute that was enacted on August 13 and 
became effective on October 1). 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. The statutory urgency and practical necessity are good

[[Page 65026]]

cause to forego the ordinary requirements of notice-and-comment 
rulemaking.

Congressional Review Act

    The Administrator of OIRA has determined that this rule qualifies 
under the definition set forth in 5 U.S.C. 804(2) 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). Under 
the CRA, such a rule generally may take effect no earlier than 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 the SLFRF program have 
been reviewed and approved by OMB pursuant to the Paperwork Reduction 
Act (44 U.S.C. Chapter 35) (PRA) and assigned control number 1505-0271. 
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. This interim final rule is not 
altering the previously approved information collections for the SLFRF 
program. The table below includes the estimates of hourly burden under 
this program that have been approved in previously approved information 
collections.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Number                                                                          Cost to
                                                  Number     responses      Total                                                  Total     respondents
                  Reporting                    respondents      per       responses              Hours per response              burden in   ($48.80 per
                                                             respondent                                                            hours       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
Tribal Employment Information Form...........          584            1          584  .75 (45 minutes)........................          438       21,374
Request for Extension Form...................           96            1           96  1.......................................           96        4,685
Annual Recovery Plan Performance Report......          430            1          430  100.....................................       43,000    2,098,400
NEU Distribution Template....................           55            2          110  10......................................        1,100       53,680
Non-UGLG Distribution Template...............           55            2          110  5.......................................          550       26,840
Transfer Forms...............................        1,500            1        1,500  1.......................................        1,500       73,200
NEU Agreements and Supporting Documentation..       26,000            1       26,000  .5......................................       13,000      634,400
Project and Expenditure Report (quarterly)...        2,000            4        8,000  6.......................................       48,000    2,342,400
Project and Expenditure Report (annual)......       29,000            1       29,000  6.......................................      174,000    8,491,200
                                              ----------------------------------------------------------------------------------------------------------
    Total....................................       64,770  ...........       78,880  ........................................      284,209   13,869,339
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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.

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 APA 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 or any 
other law 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. Because 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

    Community development, Disaster assistance, Executive compensation, 
State and Local Governments, Public health emergency, Tribal 
governments, Transportation.

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

PART 35--PANDEMIC RELIEF PROGRAMS

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

    Authority:  42 U.S.C. 802(f); 42 U.S.C. 803(f); 31 U.S.C. 321; 
12 U.S.C. 5701-5710; Division N, Title V, Subtitle B, Pub. L. 116-
260, 134 Stat. 1182 (12 U.S.C. 4703a); 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 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.

    Authority:  42 U.S.C. 802(f); 42 U.S.C. 803(f); section 102(c) 
of Division LL of the Consolidated Appropriations Act, 2023 (Pub. L. 
117-328).


Sec.  35.1  Purpose.

    This part implements sections 602 and 603 of the Social Security 
Act, as added by section 9901 of the American Rescue Plan Act (Subtitle 
M of Title IX of Pub. L. 117-2) and amended by section 102 of Division 
LL of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328).


Sec.  35.2  Applicability.

    This part applies to states, territories, Tribal governments, 
metropolitan cities, nonentitlement units of local government, 
counties, and units of general local government that accept a

[[Page 65027]]

payment or transfer of funds made under section 602 or 603 of the 
Social Security Act.


Sec.  35.3  Definitions.

    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.
    Capital expenditures has the same meaning given in 2 CFR 200.1.
    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 that reduces any tax (by providing for a reduction in a 
rate, a rebate, a deduction, a credit, or otherwise) or delays the 
imposition of any tax or tax increase. 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 or territory, the 
period that:
    (1) Begins on March 3, 2021; and
    (2) Ends on the last day of the fiscal year of such State or 
territory in which all funds received by the State or territory 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 lasting 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.).
    Delivery sequence means the order in which disaster relief agencies 
and organizations provide assistance pursuant to 44 CFR 206.191.
    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.
    Disaster loss means a loss suffered as a result of a major disaster 
or emergency declared under section 401 of the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act (42 U.S.C. 5170).
    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 
childcare; 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; and 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 non-public 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 non-public 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.
    Emergency relief means assistance that is needed to save lives and 
to protect property and public health and safety, or to lessen or avert 
the threat of catastrophe.
    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 and 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 also includes revenue from liquor stores that are 
owned and operated by state and local governments. General revenue does 
not include revenues from utilities, except recipients may choose to 
include revenue from utilities that are part of their own government as 
general revenue provided the recipient does so consistently over the 
remainder of the period of performance. Revenue from Tribal business 
enterprises must be included in general revenue.
    Infrastructure Investment and Jobs Act means the Infrastructure 
Investment and Jobs Act, Public Law 117-58, 135 Stat. 429 (Nov. 15, 
2021).
    Intergovernmental transfers means money received from other 
governments, including grants and shared taxes.
    Low-income household means a household with:
    (1) Income at or below 185 percent of the Federal Poverty 
Guidelines for the size of its household based on the poverty 
guidelines published most recently by the Department of Health and 
Human Services; or
    (2) Income at or below 40 percent of the Area Median Income for its 
county and size of household based on data published most recently by 
the

[[Page 65028]]

Department of Housing and Urban Development.
    Micro-business means a small business that has five or fewer 
employees, one or more of whom owns the small business.
    Moderate-income household means a household with:
    (1) Income at or below 300 percent of the Federal Poverty 
Guidelines for the size of its household based on poverty guidelines 
published most recently by the Department of Health and Human Services; 
or
    (2) Income at or below 65 percent of the Area Median Income for its 
county and size of household based on data published most recently by 
the Department of Housing and Urban Development.
    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.
    Natural disaster means any hurricane, tornado, storm, flood, high 
water, wind-driven water, tidal wave, tsunami, earthquake, volcanic 
eruption, landslide, mudslide, snowstorm, drought, or fire, in each 
case attributable to natural causes, that causes or may cause 
substantial damage, injury, or imminent threat to civilian property or 
persons. ``Natural disaster'' may also include another type of natural 
catastrophe, attributable to natural causes, that causes or may cause 
substantial damage, injury, or imminent threat to civilian property or 
persons.
    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 for that reporting year.
    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) or 
501(c)(19) 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.
    Operating expenses means costs necessary to operate and manage a 
public transportation system, including driver salaries, fuel, and 
items having a useful life of less than one year. Operating expenses do 
not include preventive maintenance activities.
    Pension fund means a defined benefit plan and does not include a 
defined contribution plan.
    Period of performance means the time period described in Sec.  35.5 
during which a recipient may obligate and expend funds in accordance 
with sections 602(c)(1), 602(c)(5)(E), 603(c)(1), and 603(c)(6)(D) of 
the Social Security Act and this subpart.
    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 in total over the period of performance with respect to 
any single eligible worker. Premium pay may be awarded to non-hourly 
and part-time eligible workers performing essential work. 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 per hour 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 worker's 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).
    Surface Transportation project means any of the following:
    (1) A project eligible under 23 U.S.C. 117;
    (2) A project eligible under 23 U.S.C. 119;
    (3) A project eligible under 23 U.S.C. 124, as added by the 
Infrastructure Investment and Jobs Act;
    (4) A project eligible under 23 U.S.C. 133;
    (5) An activity to carry out 23 U.S.C. 134;
    (6) A project eligible under 23 U.S.C. 148;
    (7) A project eligible under 23 U.S.C. 149;
    (8) A project eligible under 23 U.S.C. 151(f), as added by the 
Infrastructure Investment and Jobs Act;
    (9) A project eligible under 23 U.S.C. 165;
    (10) A project eligible under 23 U.S.C. 167;
    (11) A project eligible under 23 U.S.C. 173, as added by the 
Infrastructure Investment and Jobs Act;
    (12) A project eligible under 23 U.S.C. 175, as added by the 
Infrastructure Investment and Jobs Act;
    (13) A project eligible under 23 U.S.C. 176, as added by the 
Infrastructure Investment and Jobs Act;
    (14) A project eligible under 23 U.S.C. 202;
    (15) A project eligible under 23 U.S.C. 203;
    (16) A project eligible under 23 U.S.C. 204;
    (17) A project eligible under the program for national 
infrastructure investments commonly known as the ``Rebuilding American 
Infrastructure with Sustainability and Equity'' grant program;
    (18) A project eligible for credit assistance under the 
Transportation Infrastructure Finance and Innovation Act program under 
23 U.S.C. chapter 6;
    (19) A project that furthers the completion of a designated route 
of the

[[Page 65029]]

Appalachian Development Highway System under 40 U.S.C. 14501;
    (20) A project eligible under 49 U.S.C. 5307;
    (21) A project eligible under 49 U.S.C. 5309;
    (22) A project eligible under 49 U.S.C. 5311;
    (23) A project eligible under 49 U.S.C. 5337;
    (24) A project eligible under 49 U.S.C. 5339;
    (25) A project eligible under 49 U.S.C. 6703, as added by the 
Infrastructure Investment and Jobs Act;
    (26) A project eligible under the bridge replacement, 
rehabilitation, preservation, protection, and construction program 
under paragraph (1) under the heading `HIGHWAY INFRASTRUCTURE PROGRAM' 
under the heading `FEDERAL HIGHWAY ADMINISTRATION' under the heading 
`DEPARTMENT OF TRANSPORTATION' under title VIII of division J of the 
Infrastructure Investment and Jobs Act; and
    (27) A project eligible under 49 U.S.C. 6701 for the purpose set 
forth in Sec.  35.6(h)(1)(i)(C).
    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.
    Title I eligible schools means schools eligible to receive services 
under section 1113 of Title I, Part A of the Elementary and Secondary 
Education Act of 1965, as amended (20 U.S.C. 6313), including schools 
served under section 1113(b)(1)(C) of that Act.
    Title I project means an activity eligible under section 105(a) of 
the Housing and Community Development Act of 1974 (42 U.S.C. 5305(a)).
    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 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)).


Sec.  35.4  Reservation of authority, reporting.

    (a) Reservation of authority. Nothing in this part 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 part, 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 period 
of performance, recipients shall provide to the Secretary or her 
delegate, as applicable, periodic reports providing detailed accounting 
of the uses of funds, modifications to a State or Territory's tax 
revenue sources, and such other information as the Secretary or her 
delegate, as applicable, 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 for the purposes 
enumerated in Sec.  35.6 (b) through (f) to cover costs incurred during 
the period beginning March 3, 2021, and ending December 31, 2024, 
subject to the restrictions set forth in sections 602(c)(2) and 
603(c)(2) of the Social Security Act, as applicable. A recipient may 
only use funds for the purposes enumerated in Sec.  35.6 (g) through 
(h) to cover costs incurred during the period beginning December 29, 
2022, and ending December 31, 2024, subject to the restrictions set 
forth in sections 602(c)(2), 602(c)(5)(C), 603(c)(2), and 603(c)(6)(B) 
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. A recipient must return funds obligated 
for a use identified in Sec.  35.6 (b) through (g) by December 31, 
2024, but not expended by December 31, 2026. A recipient must return 
funds obligated for a use identified in Sec.  35.6 (h) by December 31, 
2024, but not expended by September 30, 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 (h) 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 if the use meets the 
criteria provided in paragraph (b)(1) of this section or is enumerated 
in paragraph (b)(3) of this section; provided that, in the case of a 
use of funds for a capital expenditure under paragraph (b)(1) or (b)(3) 
of this section, the use of funds must also meet the criteria provided 
in paragraph (b)(4) of this section. Treasury may also articulate 
additional eligible programs, services, or capital expenditures from 
time to time that satisfy the eligibility criteria of this paragraph 
(b), which

[[Page 65030]]

shall be eligible under this paragraph (b).
    (1) Identifying eligible responses to the public health emergency 
or its negative economic impacts.
    (i) A program, service, or capital expenditure is eligible under 
this paragraph (b)(1) if a recipient identifies a harm or impact to a 
beneficiary or class of beneficiaries caused or exacerbated by the 
public health emergency or its negative economic impacts and the 
program, service, or capital expenditure responds to such harm.
    (ii) A program, service, or capital expenditure responds to a harm 
or impact experienced by an identified beneficiary or class of 
beneficiaries if it is reasonably designed to benefit the beneficiary 
or class of beneficiaries that experienced the harm or impact and is 
related and reasonably proportional to the extent and type of harm or 
impact experienced.
    (2) Identified harms: presumptions of impacted and 
disproportionately impacted beneficiaries. A recipient may rely on the 
following presumptions to identify beneficiaries presumptively impacted 
or disproportionately impacted by the public health emergency or its 
negative economic impacts for the purpose of providing a response under 
paragraph (b)(1) or (b)(3) of this section:
    (i) Households or populations that experienced unemployment; 
experienced increased food or housing insecurity; qualify for the 
Children's Health Insurance Program (42 U.S.C. 1397aa et seq.), 
Childcare Subsidies through the Child Care and Development Fund Program 
(42 U.S.C. 9857 et seq. and 42 U.S.C. 618), or Medicaid (42 U.S.C. 1396 
et seq.); if funds are to be used for affordable housing programs, 
qualify for the National Housing Trust Fund (12 U.S.C. 4568) or the 
Home Investment Partnerships Program (42 U.S.C. 12721 et seq.); if 
funds are to be used to address impacts of lost instructional time for 
students in kindergarten through twelfth grade, any student who did not 
have access to in-person instruction for a significant period of time; 
and low- and moderate-income households and populations are presumed to 
be impacted by the public health emergency or its negative economic 
impacts;
    (ii) The general public is presumed to be impacted by the public 
health emergency for the purposes of providing the uses set forth in 
paragraphs (b)(3)(i)(A) and (b)(3)(i)(C) of this section; and
    (iii) The following households, communities, small businesses, and 
nonprofit organizations are presumed to be disproportionately impacted 
by the public health emergency or its negative economic impacts:
    (A) Households and populations residing in a qualified census 
tract; households and populations receiving services provided by Tribal 
governments; households and populations residing in the territories; 
households and populations receiving services provided by territorial 
governments; low-income households and populations; households that 
qualify for Temporary Assistance for Needy Families (42 U.S.C. 601 et 
seq.), the Supplemental Nutrition Assistance Program (7 U.S.C. 2011 et 
seq.), Free and Reduced Price School Lunch and/or Breakfast programs 
(42 U.S.C. 1751 et seq. and 42 U.S.C. 1773), Medicare Part D Low-income 
Subsidies (42 U.S.C. 1395w-114), Supplemental Security Income (42 
U.S.C. 1381 et seq.), Head Start (42 U.S.C. 9831 et seq.), Early Head 
Start (42 U.S.C. 9831 et seq.), the Special Supplemental Nutrition 
Program for Women, Infants, and Children (42 U.S.C. 1786), Section 8 
Vouchers (42 U.S.C. 1437f), the Low-Income Home Energy Assistance 
Program (42 U.S.C. 8621 et seq.), Pell Grants (20 U.S.C. 1070a), and, 
if SLFRF funds are to be used for services to address educational 
disparities, Title I eligible schools;
    (B) Small businesses operating in a qualified census tract, 
operated by Tribal governments or on Tribal lands, or operating in the 
territories; and
    (C) Nonprofit organizations operating in a qualified census tract, 
operated by Tribal governments or on Tribal lands, or operating in the 
territories.
    (3) Enumerated eligible uses: responses presumed reasonably 
proportional. A recipient may use funds to respond to the public health 
emergency or its negative economic impacts on a beneficiary or class of 
beneficiaries for one or more of the following purposes unless such use 
is grossly disproportionate to the harm caused or exacerbated by the 
public health emergency or its negative economic impacts:
    (i) Responding to the public health impacts of the public health 
emergency for purposes including:
    (A) COVID-19 mitigation and prevention in a manner that is 
consistent with recommendations and guidance from the Centers for 
Disease Control and Prevention, including vaccination programs and 
incentives; testing programs; contact tracing; isolation and 
quarantine; mitigation and prevention practices in congregate settings; 
acquisition and distribution of medical equipment for prevention and 
treatment of COVID-19, including personal protective equipment; COVID-
19 prevention and treatment expenses for public hospitals or health 
care facilities, including temporary medical facilities; establishing 
or enhancing public health data systems; installation and improvement 
of ventilation systems in congregate settings, health facilities, or 
other public facilities; and assistance to small businesses, 
nonprofits, or impacted industries to implement mitigation measures;
    (B) Medical expenses related to testing and treating COVID-19 that 
are provided in a manner consistent with recommendations and guidance 
from the Centers for Disease Control and Prevention, including 
emergency medical response expenses, treatment of long-term symptoms or 
effects of COVID-19, and costs to medical providers or to individuals 
for testing or treating COVID-19;
    (C) Behavioral health care, including prevention, treatment, 
emergency or first-responder programs, harm reduction, supports for 
long-term recovery, and behavioral health facilities and equipment; and
    (D) Preventing and responding to increased violence resulting from 
the public health emergency, including community violence intervention 
programs, or responding to increased gun violence resulting from the 
public health emergency, including payroll and covered benefits 
associated with community policing strategies; enforcement efforts to 
reduce gun violence; and investing in technology and equipment;
    (ii) Responding to the negative economic impacts of the public 
health emergency for purposes including:
    (A) Assistance to households and individuals, including:
    (1) Assistance for food; emergency housing needs; burials, home 
repairs, or weatherization; internet access or digital literacy; cash 
assistance; and assistance accessing public benefits;
    (2) Paid sick, medical, or family leave programs, or assistance to 
expand access to health insurance;
    (3) Childcare, early learning services, home visiting, or 
assistance for child welfare-involved families or foster youth;
    (4) Programs to address the impacts of lost instructional time for 
students in kindergarten through twelfth grade;
    (5) Development, repair, and operation of affordable housing and 
services or programs to increase long-term housing security;

[[Page 65031]]

    (6) Financial services that facilitate the delivery of Federal, 
State, or local benefits for unbanked and underbanked individuals;
    (7) Benefits for the surviving family members of individuals who 
have died from COVID-19, including cash assistance to surviving spouses 
or dependents of individuals who died of COVID-19;
    (8) Assistance for individuals who want and are available for work, 
including those who are unemployed, have looked for work sometime in 
the past 12 months, who are employed part time but who want and are 
available for full-time work, or who are employed but seeking a 
position with greater opportunities for economic advancement;
    (9) Facilities and equipment related to the provision of services 
to households provided in paragraphs (b)(3)(ii)(A)(1) through(8) of 
this section;
    (10) The following expenses related to Unemployment Trust Funds:
    (i) Contributions to a recipient Unemployment Trust Fund and 
repayment of principal amounts due on advances received under Title XII 
of the Social Security Act (42 U.S.C. 1321) up to an amount equal to 
(a) the difference between the balance in the recipient's Unemployment 
Trust Fund as of January 27, 2020, and the balance of such account as 
of May 17, 2021, plus (b) the principal amount outstanding as of May 
17, 2021, on any advances received under Title XII of the Social 
Security Act between January 27, 2020, and May 17, 2021; provided that 
if a recipient repays principal on Title XII advances or makes a 
contribution to an Unemployment Trust Fund after April 1, 2022, such 
recipient shall not reduce average weekly benefit amounts or maximum 
benefit entitlements prior to December 31, 2024; and
    (ii) Any interest due on such advances received under Title XII of 
the Social Security Act (42 U.S.C. 1321); and
    (11) A program, service, capital expenditure, or other assistance 
that is provided to a disproportionately impacted household, 
population, or community, including:
    (i) Services to address health disparities of the 
disproportionately impacted household, population, or community;
    (ii) Housing vouchers and relocation assistance;
    (iii) Investments in communities to promote improved health 
outcomes and public safety such as parks, recreation facilities, and 
programs that increase access to healthy foods;
    (iv) Capital expenditures and other services to address vacant or 
abandoned properties;
    (v) Services to address educational disparities; and
    (vi) Facilities and equipment related to the provision of these 
services to the disproportionately impacted household, population, or 
community.
    (B) Assistance to small businesses, including:
    (1) Programs, services, or capital expenditures that respond to the 
negative economic impacts of the COVID-19 public health emergency, 
including loans or grants to mitigate financial hardship such as 
declines in revenues or impacts of periods of business closure, or 
providing technical assistance; and
    (2) A program, service, capital expenditure, or other assistance 
that responds to disproportionately impacted small businesses, 
including rehabilitation of commercial properties; storefront and 
fa[ccedil]ade improvements; technical assistance, business incubators, 
and grants for start-ups or expansion costs for small businesses; and 
programs or services to support micro-businesses;
    (C) Assistance to nonprofit organizations including programs, 
services, or capital expenditures, including loans or grants to 
mitigate financial hardship such as declines in revenues or increased 
costs, or technical assistance;
    (D) Assistance to tourism, travel, hospitality, and other impacted 
industries for programs, services, or capital expenditures, including 
support for payroll costs and covered benefits for employees, 
compensating returning employees, support for operations and 
maintenance of existing equipment and facilities, and technical 
assistance; and
    (E) Expenses to support public sector capacity and workforce, 
including:
    (1) 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;
    (2) Payroll, covered benefit, and other costs associated with 
programs or services to support the public sector workforce and with 
the recipient:
    (i) Hiring or rehiring staff to fill budgeted full-time equivalent 
positions that existed on January 27, 2020, but that were unfilled or 
eliminated as of March 3, 2021; or
    (ii) Increasing the number of its budgeted full-time equivalent 
employees by up to the difference between the number of its budgeted 
full-time equivalent employees on January 27, 2020, multiplied by 
1.075, and the number of its budgeted full-time equivalent employees on 
March 3, 2021, provided that funds shall only be used for additional 
budgeted full-time equivalent employees above the recipient's number of 
budgeted full-time equivalent employees as of March 3, 2021;
    (3) Costs to improve the design and execution of programs 
responding to the COVID-19 pandemic and to administer or improve the 
efficacy of programs addressing the public health emergency or its 
negative economic impacts; and
    (4) Costs associated with addressing administrative needs of 
recipient governments that were caused or exacerbated by the pandemic.
    (4) Capital expenditures. A recipient, other than a Tribal 
government, must prepare a written justification for certain capital 
expenditures according to Table 1 of paragraph (b) of this section. 
Such written justification must include the following elements:
    (i) Describe the harm or need to be addressed;
    (ii) Explain why a capital expenditure is appropriate; and
    (iii) Compare the proposed capital expenditure to at least two 
alternative capital expenditures and demonstrate why the proposed 
capital expenditure is superior.

                        Table 1 to Paragraph (b)
------------------------------------------------------------------------
                                    and the use is    and the use is not
 If a project has total expected     enumerated in       enumerated in
     capital expenditures of         (b)(3), then        (b)(3), then
------------------------------------------------------------------------
Less than $1 million............  No Written          No Written
                                   Justification       Justification
                                   required.           required.
Greater than or equal to $1       Written             Written
 million, but less than $10        Justification       Justification
 million.                          required but        required and
                                   recipients are      recipients must
                                   not required to     submit as part of
                                   submit as part of   regular reporting
                                   regular reporting   to Treasury.
                                   to Treasury.

[[Page 65032]]

 
$10 million or more.............  Written
                                   Justification
                                   required and
                                   recipients must
                                   submit as part of
                                   regular reporting
                                   to Treasury.
------------------------------------------------------------------------

    (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 that 
have eligible workers who perform essential work, 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:
    (1) The eligible worker's total wages and remuneration, including 
the premium pay, is less than or equal to 150 percent of the greater of 
such eligible worker's residing State's or county's average annual wage 
for all occupations as defined by the Bureau of Labor Statistics' 
Occupational Employment and Wage Statistics;
    (2) The eligible worker is not exempt from the Fair Labor Standards 
Act overtime provisions (29 U.S.C. 207); or
    (3) The recipient has submitted to the Secretary a written 
justification that explains how providing premium pay to the eligible 
worker is responsive to the eligible worker performing essential work 
during the COVID-19 public health emergency (such as a description of 
the eligible workers' duties, health, or financial risks faced due to 
COVID-19, and why the recipient determined that the premium pay was 
responsive despite the worker's higher income).
    (d) Providing government services. A recipient may use funds for 
the provision of government services up to an amount equal to the 
greater of:
    (1) $10,000,000; or
    (2) the amount of the reduction in the recipient's general revenue 
due to the COVID-19 public health emergency, which equals the sum of 
the reduction in revenue, calculated as of each date identified in 
paragraph (d)(2)(i) of this section and according to the formula in 
paragraph (d)(2)(ii) of this section:
    (i) A recipient must make a one-time election to calculate the 
reduction in its general revenue using information as of either:
    (A) December 31, 2020, December 31, 2021, December 31, 2022, and 
December 31, 2023; or
    (B) The last day of each of the recipient's fiscal years ending in 
2020, 2021, 2022, and 2023.
    (ii) A reduction in a recipient's general revenue for each date 
identified in paragraph (d)(2)(i) equals:

Max {[Base Year Revenue* (1 + Growth 
Adjustment)[supcaret](nt/12)]-Actual General Revenue; 
0{time} 


Where:

    (A) Base Year Revenue is the recipient's general revenue for the 
most recent full fiscal year prior to the COVID-19 public health 
emergency;
    (B) Growth Adjustment is equal to the greater of 5.2 percent (or 
0.052) and the recipient's average annual revenue growth over the three 
full fiscal years prior to the COVID-19 public health emergency;
    (C) n equals the number of months elapsed from the end of the base 
year to the calculation date;
    (D) Subscript t denotes the specific calculation date; and
    (E) Actual General Revenue is a recipient's actual general revenue 
collected during the 12-month period ending on each calculation date 
identified in paragraph (d)(2)(i) of this section, except:
    (1) For purposes of all calculation dates on or after April 1, 
2022, in the case of any change made after January 6, 2022, to any law, 
regulation, or administrative interpretation that reduces any tax (by 
providing for a reduction in a rate, a rebate, a deduction, a credit, 
or otherwise) or delays the imposition of any tax or tax increase and 
that the recipient assesses has had the effect of decreasing the amount 
of tax revenue collected during the 12-month period ending on the 
calculation date relative to the amount of tax revenue that would have 
been collected in the absence of such change, the recipient must add to 
actual general revenue the amount of such decrease in tax revenue;
    (2) For purposes of any calculation date on or after April 1, 2022, 
in the case of any change made after January 6, 2022, to any law, 
regulation, or administrative interpretation that increases any tax (by 
providing for an increase in a rate, the reduction of a rebate, a 
deduction, or a credit, or otherwise) or accelerates the imposition of 
any tax or tax increase and that the recipient assesses has had the 
effect of increasing the amount of tax revenue collected during the 12-
month period ending on the calculation date relative to the amount of 
tax revenue that would have been collected in the absence of such 
change, the recipient must subtract from actual general revenue the 
amount of such increase in tax revenue; and
    (3) If the recipient makes a one-time election to adjust general 
revenue to reflect tax changes made during the period beginning on 
January 27, 2020 and ending on January 6, 2022, for purposes of each 
calculation date identified in paragraph (d)(2)(i) of this section:
    (i) In the case of any change made during such prior period to any 
law, regulation, or administrative interpretation that reduces any tax 
(by providing for a reduction in a rate, a rebate, a deduction, a 
credit, or otherwise) or delays the imposition of any tax or tax 
increase and that the recipient assesses has had the effect of 
decreasing the amount of tax revenue collected during the 12-month 
period ending on the calculation date relative to the amount of tax 
revenue that would have been collected in the absence of such change, 
the recipient must add to actual general revenue the amount of such 
decrease in tax revenue; and
    (ii) In the case of any change made during such prior period to any 
law, regulation, or administrative interpretation that increases any 
tax (by providing for an increase in a rate, the reduction of a rebate, 
a deduction, or a credit, or otherwise) or accelerates the imposition 
of any tax or tax increase and that the recipient assesses has had the 
effect of increasing the amount of tax revenue collected during the 12-
month period ending on the calculation date relative to the amount of 
tax revenue that would have been collected in the absence of such 
change, the recipient must subtract from actual general revenue the 
amount of such increase in tax revenue; and
    (4) With respect to any calculation date during the period 
beginning on January 6, 2022, and ending on March 31, 2022, if the 
recipient makes the

[[Page 65033]]

election in paragraph (d)(3) of this section, the recipient must also 
make the adjustments referenced in paragraph (d)(3) of this section 
with respect to any such changes in law, regulation, or administrative 
interpretation during the period beginning on January 6, 2022, and 
ending on such calculation date.
    (e) Making necessary investments in water, sewer, and broadband 
infrastructure. A recipient may use funds to make the following 
investments in water, sewer, and broadband infrastructure.
    (1) Water and sewer investments--(i) Clean Water State Revolving 
Fund projects. Projects or activities of the type that meet the 
eligibility requirements of section 603(c) of the Federal Water 
Pollution Control Act (33 U.S.C. 1383(c));
    (ii) Additional stormwater projects. Projects to manage, reduce, 
treat, or recapture stormwater or subsurface drainage water regardless 
of whether such projects would improve water quality if such projects 
would otherwise meet the eligibility requirements of section 603(c)(5) 
of the Federal Water Pollution Control Act (33 U.S.C. 1383(c)(5));
    (iii) Drinking Water State Revolving Fund projects. Projects or 
activities of the type that meet the eligibility requirements of 
section 1452 of the Safe Drinking Water Act (42 U.S.C. 300j-12) as 
implemented by the regulations adopted by the Environmental Protection 
Agency (EPA) under 40 CFR 35.3520, provided that:
    (A) The recipient is not required to comply with the limitation 
under 40 CFR 35.3520(c)(2) to acquisitions of land from willing sellers 
or the prohibition under 40 CFR 35.3520(e)(6) on uses of funds for 
certain Tribal projects; and
    (B) In the case of lead service line replacement projects, the 
recipient must replace the full length of the service line and may not 
replace only a partial portion of the service line.
    (iv) Additional lead remediation and household water quality 
testing. Projects or activities to address lead in drinking water or 
provide household water quality testing that are within the scope of 
the programs the EPA is authorized to establish under sections 
1459A(b)(2), 1459B(b)(1), 1464(d)(2), and 1465 of the Safe Drinking 
Water Act (42 U.S.C. 300j-19a(b)(2), 300j-19b(b)(1), 300j-24(d)(2), and 
300j-25), provided that:
    (A) In the case of lead service line replacement projects, the 
recipient must replace the full length of the service line and may not 
replace only a partial portion of the service line; and
    (B) In the case of projects within the scope of the program the EPA 
is authorized to establish under section 1459B(b)(1) of the Safe 
Drinking Water Act, the recipient may determine the income eligibility 
of homeowners served by lead service line replacement projects in its 
discretion.
    (v) Drinking water projects to support increased population. 
Projects of the type that meet the eligibility requirements of 40 CFR 
35.3520 other than the requirement of 40 CFR 35.3520(b)(1) to address 
present or prevent future violations of health-based drinking water 
standards, if the following conditions are met:
    (A) The project is needed to support increased population, with 
need assessed as of the time the project is undertaken;
    (B) The project is designed to support no more than a reasonable 
level of projected increased need, whether due to population growth or 
otherwise;
    (C) The project is a cost-effective means for achieving the desired 
level of service; and
    (D) The project is projected to continue to provide an adequate 
level of drinking water over its estimated useful life.
    (vi) Dams and reservoirs. Rehabilitation of dams and reservoirs if 
the following conditions are met:
    (A) The project meets the requirements of 40 CFR 35.3520 other than 
the following requirements:
    (1) The prohibition on the rehabilitation of dams and reservoirs in 
paragraphs (e)(1) and (e)(3) of 40 CFR 35.3520; and
    (2) The requirement in paragraph (b)(1) of 40 CFR 35.3520 that the 
project is needed to address present or prevent future violations of 
health-based drinking water standards, provided that if the dam or 
reservoir project does not meet this requirement, the project must be 
needed to support increased population, with need assessed as of the 
time the project is undertaken, and the project must be projected to 
continue to provide an adequate level of drinking water over its 
estimated useful life;
    (B) The primary purpose of the dam or reservoir is for drinking 
water supply;
    (C) The project is needed for the provision of drinking water 
supply, with need assessed as of the time the project is initiated;
    (D) The project is designed to support no more than a reasonable 
level of projected increased need, whether due to population growth or 
otherwise; and
    (E) The project is a cost-effective means for achieving the desired 
level of service.
    (vii) Private wells. Rehabilitation of private wells, testing 
initiatives to identify contaminants in private wells, and treatment 
activities and remediation projects that address contamination in 
private wells, if the project meets the requirements of 40 CFR 35.3520 
other than the limitation to certain eligible systems under paragraph 
(a) of 40 CFR 35.3520.
    (2) Broadband investments--(i) General. Broadband infrastructure if 
the following conditions are met:
    (A) The broadband infrastructure is designed to provide service to 
households and businesses with an identified need, as determined by the 
recipient, for such infrastructure;
    (B) The broadband infrastructure is designed to, upon completion:
    (1) Reliably meet or exceed symmetrical 100 Mbps download speed and 
upload speeds; or
    (2) 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 reliably meeting or exceeding 
symmetrical 100 Mbps download speed and upload speeds:
    (i) Reliably meet or exceed 100 Mbps download speed and between at 
least 20 Mbps and 100 Mbps upload speed; and
    (ii) Be scalable to a minimum of 100 Mbps download speed and 100 
Mbps upload speed; and
    (C) The service provider for a completed broadband infrastructure 
investment project that provides service to households is required, for 
as long as the SLFRF-funded broadband infrastructure is in use, by the 
recipient to:
    (1) Participate in the Federal Communications Commission's 
Affordable Connectivity Program (ACP) through the lifetime of the ACP; 
or (2) Otherwise provide access to a broad-based affordability program 
to low-income consumers in the proposed service area of the broadband 
infrastructure that provides benefits to households commensurate with 
those provided under the ACP through the lifetime of the ACP.
    (ii) Cybersecurity infrastructure investments. Cybersecurity 
infrastructure investments that are designed to improve the reliability 
and resiliency of new and existing broadband infrastructure. Such 
investments may include the addition or modernization of network 
security hardware and software tools designed to strengthen 
cybersecurity for the end-users of these networks.
    (f) Meeting the non-Federal matching requirements for Bureau of 
Reclamation projects. A recipient may use funds to

[[Page 65034]]

meet the non-Federal matching requirements of any authorized Bureau of 
Reclamation project.
    (g) Natural Disaster Emergency Relief. Subject to paragraph (g)(3) 
of this section, a recipient may use funds to provide emergency relief 
from the physical impacts or negative economic impacts of a natural 
disaster, including the forms of emergency relief identified in 
paragraph (g)(2) of this section, if the use meets the criteria 
provided in paragraph (g)(1) of this section.
    (1) Identifying emergency relief from the physical or negative 
economic impacts of a natural disaster. A recipient provides emergency 
relief from the physical impacts or negative economic impacts of a 
natural disaster when the recipient:
    (i) Identifies either:
    (A) a natural disaster that has occurred or is expected to occur 
imminently and that has been the subject of an emergency declaration or 
designation applicable to the recipient's geography and jurisdiction in 
the form of:
    (1) an emergency declaration pursuant to the Stafford Act;
    (2) an emergency declaration by the Governor of a state pursuant to 
state law;
    (3) an emergency declaration made by a Tribal government; or
    (4) a designation as a natural disaster by the chief executive (or 
equivalent) of the recipient, provided that the chief executive (or 
equivalent) documents that the event meets the definition of natural 
disaster; or
    (B) a natural disaster that is threatened to occur in the future, 
provided that the recipient documents evidence of historical patterns 
or predictions of natural disasters that would reasonably demonstrate 
the likelihood of the future occurrence of a natural disaster in the 
recipient's jurisdiction; and
    (ii) Provides emergency relief that responds to and is related and 
reasonably proportional to:
    (A) the physical or negative economic impacts of the natural 
disaster identified in paragraph (g)(1)(i)(A) of this section, or
    (B) the potential physical or negative economic impacts of the 
natural disaster identified in paragraph (g)(1)(i)(B) of this section.
    (2) Enumerated eligible uses. A recipient may use funds to provide 
emergency relief from
    (i) the physical or negative economic impacts of natural disasters 
identified under paragraph (g)(1)(i)(A) of this section by engaging in 
one of the following activities, provided that the emergency relief is 
related and reasonably proportional to the physical or negative 
economic impacts of the natural disaster identified:
    (A) Temporary emergency housing, food assistance, and financial 
assistance for lost wages;
    (B) Emergency protective measures, including assistance for 
emergency access, medical care and transport, emergency operations 
center related costs, and other activities traditionally undertaken as 
part of emergency response;
    (C) Debris removal activities, including the clearance, removal, 
and disposal of vegetative debris, construction and demolition debris, 
sand, mud, silt, gravel, rocks, boulders, white goods, and vehicle and 
vessel wreckage;
    (D) Restoration of public infrastructure damaged by a natural 
disaster, including roads, bridges, and utilities;
    (E) Increased operational costs, including payroll costs and costs 
for government facilities and government services;
    (F) Cash assistance for uninsured or underinsured expenses, and 
cash assistance serving low-income households; or
    (G) Home repairs for uninhabitable primary residences; or
    (ii) the potential physical or negative economic impacts of natural 
disasters identified under paragraph (g)(1)(i)(B) of this section by 
using funds for mitigation activities, provided that the emergency 
relief is related and reasonably proportional to the potential physical 
or negative economic impacts of the natural disaster identified, and 
provided further that if funds are used for capital expenditures under 
this paragraph, a recipient, other than a Tribal government, must 
prepare a written justification for activities under this paragraph 
(g)(2)(ii) with total capital expenditures of $1 million or greater. 
Such written justification must include the following elements:
    (A) Describe the emergency relief provided by the mitigation 
activity and why it is needed to lessen or avert the potential impacts 
of the natural disaster that is threatened to occur in the future;
    (B) Explain why the capital expenditure is appropriate to address 
the need for emergency relief; and
    (C) Compare the proposed capital expenditure to at least two 
alternative capital expenditures and demonstrate why the proposed 
capital expenditure is superior.
    (3) Duplication of benefits. (A) A recipient may not provide 
financial assistance under this paragraph (g) to a person, business 
concern, or other entity with respect to disaster losses for which such 
beneficiary will receive financial assistance under any other program 
or from insurance or any other source.
    (B) A recipient may provide assistance with respect to disaster 
losses to a person, business concern, or other entity that is or may be 
entitled to receive assistance for those losses from another source, if 
such person, business concern, or other entity has not received the 
other benefits by the time of application for assistance and the 
person, business concern, or other entity agrees to repay any 
duplicative assistance to the recipient. A recipient providing 
assistance with respect to disaster losses shall coordinate with the 
relevant Regional Administrator of the Federal Emergency Management 
Agency and state disaster-assistance administrator. Recipients shall 
notify subrecipients and contractors that, when providing assistance 
with respect to disaster losses, those entities are responsible for 
ensuring that beneficiaries disclose any other assistance received for 
the same disaster losses prior to receiving assistance under this 
paragraph (g).
    (C) Funds shall be used last in the delivery sequence unless the 
recipient, in consultation with the appropriate Regional Administrator 
of the Federal Emergency Management Agency or state disaster-assistance 
administrator, determines that another sequence is appropriate.
    (h) Certain infrastructure projects. A recipient may use funds for 
Surface Transportation projects as set forth in paragraph (h)(1) of 
this section and for Title I projects as set forth in paragraph (h)(2) 
of this section, subject to the requirements set forth in paragraph 
(h)(3) of this section.
    (1) Surface Transportation projects. A recipient may use funds for 
Surface Transportation projects in the manner set forth in paragraph 
(h)(1)(i) of this section, subject to the requirements and limitations 
set forth in paragraph (h)(1)(ii) of this section.
    (i)(A) A recipient may use funds to expand the scope of, to cover 
additional costs associated with, or to otherwise supplement funding 
for a project receiving funding from the Department of Transportation 
at the time that the funds are obligated and expended for the project.
    (B) A recipient may use funds for a Surface Transportation project 
that is not funded by the Department of Transportation at the time the 
funds are obligated and expended.
    (C) A recipient may use funds to satisfy non-Federal share 
requirements

[[Page 65035]]

for a project eligible under the provisions identified in paragraphs 
(1), (18), (21), and (27) of the definition of ``Surface Transportation 
project'' in Sec.  35.3 or to repay a loan provided under the 
Transportation Infrastructure Finance and Innovation Act program under 
23 U.S.C. chapter 6.
    (ii) The following limitations and requirements apply to funds used 
for Surface Transportation projects under paragraphs (h)(1)(i)(A) and 
(h)(1)(i)(B) of this section.
    (A) Funds used for Surface Transportation projects eligible under 
the provisions set forth in paragraphs (20) through (24) of the 
definition of ``Surface Transportation projects'' in Sec.  35.3 shall 
not be used for operating expenses of such a project.
    (B) Except as otherwise determined by the Secretary or the head of 
the Federal agency to which the Secretary has delegated authority, the 
requirements of titles 23, 40, and 49 of the U.S. Code, and the 
associated implementing regulations, apply to Surface Transportation 
projects, including but not limited to the following:
    (1) Project eligibility requirements;
    (2) Project approval requirements, provided that such requirements 
shall not apply to Surface Transportation projects undertaken pursuant 
to paragraph (h)(1)(i)(B) of this section that meet the following 
criteria:
    (i) The project qualifies as an ``eligible project'' under the 
program described in paragraph (17) of the definition of Surface 
Transportation project set forth in Sec.  35.3;
    (ii) The recipient does not use more than $10 million in funds for 
the project; and
    (iii) The entire project scope, including for avoidance of doubt 
any portion of the project funded through other sources, is limited to 
the actions or activities listed under 23 CFR 771.116(c)(1) 
through(22), 23 CFR 771.117(c)(1) through(30), and 23 CFR 771.118(c)(1) 
through(16), provided that the actions or activities do not involve 
unusual circumstances, as described in 23 CFR 771.116(b), 23 CFR 
771.117(b), and 23 CFR 771.118(b).
    (3) Wage and employee protection requirements, including the 
requirements set forth at 23 U.S.C. 113 and 49 U.S.C. 5333(a) and (b);
    (4) Domestic preference procurement requirements, including the 
requirements set forth at 23 U.S.C. 313, 49 U.S.C. 5323(j), 49 CFR part 
661, and 23 CFR 635.410, provided that such requirements shall not 
apply to Surface Transportation projects undertaken pursuant to 
paragraph (h)(1)(i)(B) of this section that meet the criteria set forth 
in paragraph (h)(1)(ii)(B)(2)(i) through (iii) of this section;
    (5) Project design, planning, construction, operation, maintenance, 
vehicle weight limit, and toll requirements, provided that the 
requirement to include Surface Transportation projects in a state 
transportation improvement program or transportation improvement 
program shall not apply to Surface Transportation projects undertaken 
pursuant to paragraph (h)(1)(i)(B) of this section except in 
circumstances when the project is regionally significant and requires 
action by an office of the Department of Transportation pursuant to 23 
CFR 450.218.
    (C) Except as otherwise determined by the Secretary or the head of 
the Federal agency to which the Secretary has delegated authority, the 
requirements of the National Environmental Policy Act of 1969 (42 
U.S.C. 4321 et seq.), and the associated implementing regulations, 
apply to Surface Transportation projects.
    (D) When a State uses funds for a Surface Transportation project 
eligible under title 23 of the U.S. Code or that otherwise would be 
subject to the requirements of title 23, the project must either:
    (1) Demonstrate progress in achieving a state of good repair as 
required by the State's asset management plan under 23 U.S.C. 119(e), 
or
    (2) Support the achievement of one or more performance targets of 
the State established under 23 U.S.C. 150.
    (2) Title I projects. A recipient may use funds for Title I 
projects, subject to the following limitations and requirements:
    (i) Except as otherwise determined by the Secretary or the head of 
the Federal agency to which the Secretary has delegated authority, the 
requirements of Title I of the Housing and Community Development Act of 
1974 (42 U.S.C. 5301 et seq.), and the associated implementing 
regulations, apply to Title I projects, including:
    (A) At least 70 percent of funds used for such projects, in the 
aggregate, must be used for projects that principally benefit low- and 
moderate-income persons, in accordance with the definitions and 
requirements set forth at 24 CFR 570.3, 24 CFR 570.200(a)(3), and 24 
CFR 570.208(a) for recipients that are not Tribal governments, and at 
24 CFR 1003.4 and 1003.208 for Tribal government recipients; provided, 
however, that Tribal governments may demonstrate that beneficiaries of 
Title I assistance are ``low and moderate income beneficiaries,'' as 
defined at 24 CFR 1003.4, based on an attestation by the Tribal 
government that these beneficiaries are receiving or are eligible to 
receive services administered by the Tribal government on the basis of 
an individual's income.
    (B) In the case of recipients that are not Tribal governments, 
funds used for projects must satisfy at least one of the national 
objectives as set forth in 24 CFR 570.208.
    (C) Not more than 15 percent of funds used for such projects, in 
the aggregate, may be used for public services activities and projects 
eligible under 42 U.S.C. 5305(a)(8).
    (D) Not more than 20 percent of funds used for such projects, in 
the aggregate, may be used for planning and administrative costs, as 
described at 24 CFR 570.200(g), 570.205, and 570.206 with respect to 
recipients that are not Tribal governments, and as described at 24 CFR 
1003.205 and 1003.206 with respect to recipients that are Tribal 
governments.
    (E) In the case of recipients that are not Tribal governments, 
funds used for such projects must satisfy the requirements set forth at 
42 U.S.C. 5310 and 24 CFR 570.603.
    (F) Prior to commencing a Title I project, a recipient must comply 
with the environmental protection measures set forth at 42 U.S.C. 
5304(g) and the implementing regulations set forth at 24 CFR 570.604, 
24 CFR 1003.605, and 24 CFR part 58, provided that the certification 
contemplated by 42 U.S.C. 5304(g) shall be submitted to the Secretary 
and not the Secretary of the Department of Housing and Urban 
Development.
    (ii) To the extent a Title I project relates to broadband 
infrastructure, the requirements of section 60102 of the Infrastructure 
Investment and Jobs Act shall apply.
    (3) Requirements applicable to Surface Transportation projects and 
Title I projects. (i) The total amount of funds that a recipient may 
use for costs incurred for projects set forth in paragraphs (h)(1) and 
(h)(2) of this section, taken together, shall not exceed the greater of 
$10,000,000 and 30 percent of the recipient's total award received 
pursuant to payment or transfer of funds made under section 602 or 603 
of the Social Security Act.
    (ii) Funds used for the projects set forth in paragraph (h) of this 
section must supplement, and not supplant, other Federal, State, 
territorial, Tribal, and local government funds (as applicable) that
    (A) in the case of non-Federal funds, have been obligated for 
activities or projects that are eligible as part of any

[[Page 65036]]

Surface Transportation project or Title I project, as applicable, or
    (B) in the case of Federal funds, a Federal agency has committed to 
a particular project pursuant to an award agreement or otherwise.


Sec.  35.7  Pensions.

    A recipient (other than a Tribal government) 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) of this section.


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. Sec.  35.5, 35.6, or 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, the Secretary 
will calculate any amounts subject to recoupment resulting from a 
violation of Sec. Sec.  35.5, 35.6 or 35.7 as the amounts used in 
violation of such restrictions.
    (2) Violations of Sec.  35.8. The Secretary 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,
    (ii) The amount of funds received by such recipient.
    (c) Initial notice. If the Secretary calculates an amount subject 
to recoupment under paragraph (b) of this section, Treasury will 
provide the recipient an initial written notice of the amount subject 
to recoupment along with an explanation of such amounts.
    (d) Request for reconsideration. Unless the Secretary extends or 
accelerates the time period, within 60 calendar days of receipt of an 
initial notice of recoupment provided under paragraph (c) of this 
section, a recipient may submit a written request to the Secretary 
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 the Secretary 
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 the Secretary 
extends or accelerates the time period, within 60 calendar days of 
receipt of the recipient's request for reconsideration provided 
pursuant to paragraph (d) of this section or the expiration of the 
period for requesting reconsideration provided under 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. A recipient must invoke and exhaust 
the procedures available under this subpart prior to seeking judicial 
review of a decision under Sec.  35.10.
    (f) Repayment of funds. Unless the Secretary extends or accelerates 
the time period, a recipient shall repay to the Secretary any amounts 
subject to recoupment in accordance with instructions provided by the 
Secretary:
    (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

[[Page 65037]]

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.
    (g) Other remedial actions. Prior to seeking recoupment or taking 
other appropriate action pursuant to paragraphs (c), (d), (e), or (f) 
of this section, the Secretary may notify the recipient of potential 
violations and provide the recipient an opportunity for informal 
consultation and remediation.


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 at least May 10, 
2022 and not more than 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 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 
part 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 the Secretary pursuant to 
section 603(b)(2)(B) of the Social Security Act shall distribute the 
amount of the payment to nonentitlement units of local 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. For purposes of this section 35.12, a nonentitlement unit of 
local government's most recent budget shall mean the nonentitlement 
unit of local government's total annual budget, including both 
operating and capital expenditure budgets, in effect 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 section 35.12.
    (c) Units of general local government. Each State or Territory that 
receives a payment from the Secretary 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 A.

Kayla Arslanian,
Executive Secretary.
[FR Doc. 2023-17446 Filed 9-19-23; 8:45 am]
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