The Latest ARPA News: Putting the Final Rule for SLFRF to Work

January 20, 2022 - James McCann

On January 6, 2022, Treasury released the Final Rule for State and Local Fiscal Recovery Funds (SLFRF), which takes effect April 1, 2022, replacing the Interim Final Rule published in May 2021. Many local government leaders have been reluctant to expend SLFRF funds without final federal guidance on allowable uses, documentation, and reporting in place, making this welcomed information for many government leaders.

As a leading technology vendor offering digital solutions in the budget, planning, financial management reporting, procurement, and direct citizen services, we have followed the developments in ARPA closely. We have done conference presentations and webinars, written blogs and ebooks sharing the latest information as Treasury released interim rules and reporting guidance.

The Final Rule recognizes that success with ARPA “requires resources to hire and build the capacity of staff, adopt new processes and systems, and use new technology and tools in order to effectively develop, execute, and evaluate programs.” There’s a lot to know, so let’s dive in.

Key Takeaways From the Final SLRF Rule

Improving access to and the user-experience of government information technology systems, including upgrades to hardware and software as well as improvements to public-facing websites or to data management systems is now an allowable use case.
Without calculating their actual losses, governments may choose to use their total award (up to $10M) to replace lost revenue for the award period through, December 31, 2024, as a simple, no-documentation-required standard allowance.

Quick housekeeping note: We have a variety of other resources focused on ARPA. Check out these helpful guides for more.

Background

Treasury released the Final Rule with a well coordinated effort to reach out to state and local recipients with summaries and webinars designed to explain the rule and simplify the analysis and reporting workload on recipients, while expanding their ability to use SLFRF where it can do the most good in their communities.

Final rule highlights include:

Lost revenue replacement funds can be used for all government purposes (except for pension accrual, reserves funding reserves, or debt service) and specifically including capital expenditures, administrative facilities and other infrastructure
Addressing backlogs caused by shutdowns, and technology infrastructure to adapt government operations to the pandemic
Capital expenditures under $1M do not require specific documentation for Treasury, expenditures over that threshold require the recipient to file documentation
Broader set of uses are available to respond to public health and economic impacts on households, small businesses, and others, including capital expenditures
Recipients can use the Final Rule immediately or rely on the Interim Final Rule through March 31, 2022, whichever is most beneficial to their needs

Treasury has distributed more than $245 billion to SLFRF recipients – over 99% of funds eligible to be disbursed in 2021. State governments have appropriated nearly 70% of their available funds as of November 2021.

Treasury’s discussion: Using SLFRF to invest in data and technology upgrades

The Final Rule PDF, pages 186-190 includes the following discussion (lightly edited).

Public Comment: Treasury received positive comments about the opportunity to invest in data and technology upgrades with SLFRF funds. For example, one commenter noted that investing in technology will allow the workforce to be more productive. Treasury also received comments seeking clarification on using funds for investments in data and technology, including whether upgrading government websites to improve community outreach and investing in technologies that support social distancing were eligible uses.

Treasury Response: Governments with high capacity to use data and evidence to administer programs are more likely to be responsive to the needs of their community, more transparent about their community impact, and more resilient to emergencies such as the pandemic and its economic impacts.

Treasury recognizes that collecting high-quality data and developing community-driven, evidence-based programs requires resources to hire and build the capacity of staff, adopt new processes and systems, and use new technology and tools in order to effectively develop, execute, and evaluate programs. Recipients may use SLFRF funds toward the following non-exhaustive list of uses to address the data, evidence, and program administration needs of recipients:

Program evaluation and evidence resources. Recipients are encouraged to assess the impact of their programs by beneficiary demographics, and engage with community stakeholders.
Data analysis resources to use data for effective policy-making, including data analysis, data infrastructure, data management, data sharing, data transparency, performance management, outcomes-based budgeting, and outcomes-based procurement.
Technology infrastructure resources to improve access to and the user-experience of government systems, including upgrades to hardware and software as well as improvements to public-facing websites or to data management systems, to increase public access and improve public delivery of government programs and services.
Community outreach and engagement resources to support the gathering and sharing of information in ways that improve equity and effective implementation, including but not limited to community meetings, online surveys, focus groups, and other community engagement tools.
Capacity building resources to support using data and evidence in designing, executing, and evaluating programs, including hiring consultants, and others with expertise in evaluation, data, technology, and community engagement as well as technical assistance support for public sector staff, staff of subrecipients, and community partners.
Treasury is clarifying that capital expenditures such as technology infrastructure to adapt government operations to the pandemic (e.g., video-conferencing software, improvements to case management systems or data sharing resources), reduce government backlogs, or meet increased maintenance needs are eligible.

Excerpts From the SLFRF Final Rule Text on Funding Technology Upgrades

The Final rule is 437 pages of federal regulation and discussion. We have paraphrased some particularly useful excerpts here.

1. Eligible Uses: Replacing Lost Public Sector Revenue

SLFRF provides needed fiscal relief for recipients that have experienced revenue loss due to the onset of the COVID-19 public health emergency. Specifically, SLFRF funding may be used to pay for “government services” in an amount equal to the revenue loss experienced by the recipient due to the COVID-19 public health emergency.

Government services generally include any service traditionally provided by a government, including construction of roads and other infrastructure, provision of public safety and other services, and health and educational services. Government services is the most flexible eligible use category under the SLFRF program, and funds are subject to streamlined reporting and compliance requirements.

Spending on Government Services

Recipients can use SLFRF funds on government services up to the revenue loss amount, whether that be the standard allowance amount or the amount calculated using the above approach. Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise. Here are some common examples, although this list is not exhaustive:

- Construction of schools and hospitals
- Road building and maintenance, and other infrastructure
- Health services
- General government administration, staff, and administrative facilities
- Environmental remediation
- Provision of police, fire, and other public safety services (including purchase of fire trucks and police vehicles)

2. Eligible Uses: Responding to Public Health and Economic Impacts of COVID-19

SLFRF provides resources for governments to meet the public health and economic needs of those impacted by the pandemic in their communities, as well as address long standing health and economic disparities, The eligible use category to respond to public health and negative economic impacts is organized around the types of assistance a recipient may provide and includes several sub-categories:

Public health
Assistance to households, small businesses, nonprofits, and aid to impacted industries
Public sector capacity

Drilling down into Public Sector Capacity:

Recipients may use SLFRF funding to restore and bolster public sector capacity, which supports their ability to deliver critical COVID-19 services. There are three main categories of eligible uses to bolster public sector capacity and workforce:

Public Safety, Public Health, and Human Services Staff
Government Employment and Rehiring Public Sector Staff
Effective Service Delivery

Drilling down into Effective Service Delivery:

SLFRF funding may be used to improve the efficacy of public health and economic programs through tools like program evaluation, data, and outreach, as well as to address administrative needs caused or exacerbated by the pandemic. Eligible uses include:

Supporting program evaluation, data, and outreach through:

Technology infrastructure to improve access to and the user experience of government IT systems, as well as technology improvements to increase public access and delivery of government programs and services
Community outreach and engagement activities
Capacity building resources to support using data and evidence, including hiring staff, consultants, or technical assistance support

Addressing administrative needs, including:

Administrative costs for programs responding to the public health emergency and its economic impacts, including non-SLFRF and non-federally funded programs
Addressing backlogs caused by shutdowns, increased repair or maintenance needs, and technology infrastructure to adapt government operations to the pandemic (e.g., video-conferencing software, data and case management systems)

The SLFRF portion of the American Rescue Plan Act offers local and state governments a new and much-improved operating model for federal grant programs. Anyone who was in government service during the Great Recession (2007-09) and received grants under the American Recovery and Reinvestment Act (“ARRA”}, or received FEMA disaster grants at any time, learned that federal help always comes with federal strings. Many times the maze of federal rules and regulations, the administrative reporting burden, and the associated audit costs all seemed to exceed the value of the originally well-intended help.

Recipients were encouraged to begin using funds under the Interim Final Rule, which was released in May 2021. Governments have been spending these funds to address the COVID-19 pandemic and its economic effects, and taking steps to protect their communities including those that are high-risk and underserved.

The Final Rule builds on the collective work of those early adopters, expands the range of allowable programs and simplifies reporting procedures. We think it is a major step forward for state and local governments, and the entire nation.

For more information on ARPA, check out our ebooks:

James McCann served as the Finance Director of Ukiah, California, and the Assistant Finance Director of Monterey, California before joining OpenGov. In both he was responsible for Budget, CAFR and operational reporting. Previously, he held CFO positions at a Silicon Valley start-up and a non-profit organization that provided federal and state-funded job training services. James has also held positions with Blue Shield of California, Wells Fargo and ADP. He holds an MS in Instructional Science and Technology from California State University Monterey Bay and a BS in Accounting from San Jose State University. He served with the U.S. Army Security Agency in Vietnam and Japan.

Category: Government Finance