Overview of New ARP SLFRF Interim Final Rule

On August 10, 2023, the U.S. Treasury released the Interim Final Rule codifying expanded use of American Rescue Plan, (ARP) State and Local Fiscal Recovery Funds (SLFRF) authorized by Congress in the December 29, 2022 Consolidated Appropriations Act (CAA). The CAA expanded allowable uses of SLFRF to include responding to natural disasters, matching and providing gap financing for Surface Transportation and CDBG grants, and repayment of loans made under certain Surface Transportation projects.

Recipients may retroactively date eligible projects under these new categories for costs incurred beginning December 29, 2022. A recipient may use the greater of $10 million, or 30% of its ARP SLFRF allocation, for the combined total cost projects under the Surface Transportation and CDBG Title I use. The December 31, 2024 obligation deadline remains unchanged; however, the expenditure deadline for Surface Transportation and Community Development Block Grant uses is accelerated to September 30, 2026, coinciding with the end of the federal fiscal year.

Detail on Flexibilities,  Allowable Costs and Limitations

Emergency Relief from Natural Disasters

The interim final rule gives significant flexibility to recipients to use SLFRF funds to provide emergency relief from the widespread physical and negative economic impacts of natural disasters. Recipients may also utilize this expanded SLFRF aid to mitigate impacts of disasters expected to occur imminently or in the future.

The U.S. Treasury is requiring a two-part test to determine if the natural disaster application is allowable:

1. Identify a natural disaster that has occurred, or is expected to occur, imminently or in the future; and

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.

Much like the 2022 Final Rule, recipients must also be able to demonstrate the response is related to the disaster and reasonably proportional to the impact identified. Recipients must prepare a capital justification for disaster response activities with a cost of $1 million or more.

Any disaster that meets the standards outlined in the Stafford Act is eligible for this use, in addition to disasters declared by the chief executive (or equivalent) of a recipient government, provided the event satisfies the definition of natural disaster. Enumerated uses include:

• Temporary emergency housing

• Food assistance

• Financial assistance for lost wages

• Other immediate needs

• Emergency Protective Measures

• Debris Removal

• Public Infrastructure Repair

• Increased operational and payroll costs

• Cash Assistance

• Home Repairs for Uninhabitable Primary Residences

Surface Transportation Infrastructure

Pathway One: The U.S. Treasury is now permitting use of SLFRF to supplement Surface Transportation projects receiving funding from the U.S. Department of Transportation (DOT) Pathway One. These projects include:

• INFRA Grants; National Highway Performance Program; Bridget Investment;

• Surface Transportation Block Grant Program;

• Highway Safety Improvement;

• Congestion Mitigation and Air Quality Improvement;

• Charging and Fueling Infrastructure;

• Urbanized Formula Grants. 

Treasury has delegated authority to DOT to oversee and administer compliance with applicable Surface Transportation requirements. No additional cost-sharing or matching funds are required if SLFRF funds are used, but projects remain subject to DOT’s cost-sharing rule, matching fund rules and funding caps.  SLFRF cannot be used for operating expenses of Pathway One projects.

Pathway Two: Treasury is also allowing recipients to use up to $10 million in SLFRF to fund Surface Transportation projects that meet a two-part test:

1. The project is not receiving U.S. Department of Transportation funding

2. The project does not have a significant environmental impact

The non-DOT Pathway Two projects require prior approval from the U.S. Treasury who will provide the project oversight. No additional local cost shares or matching funds are required for approved Pathway Two projects.

Pathway Three: Recipients may use SLFRF funds to satisfy the cost sharing or non-federal match requirements for certain surface transportation projects. Eligible programs include INFRA Grants, Fixed Guideway Capital Investment Grants, Mega Grants and Project eligible for credit assistance under the Transportation Infrastructure Finance and Innovation Act (TIFIA loan repayment).

Title I Projects (CDBG Program)

Recipients may use ARP SLFRF for community development and public services in line with HUD’s Community Development Block Grant (CDBG) Program. However, not more than 15% of SLFRF funds may be used for Title I projects under the public services category. The following are the uses enumerated by the U.S. Treasury:

• 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.

New housing construction and purchase of equipment are prohibited uses under CDBG but remain allowable under the 2022 Final Rule. When using SLFRF funds for Title I projects, recipients must satisfy project-level approval and certification requirements related to NEPA environmental review or maintain Environmental Review Record if the project is exempt. For projects with capital expenditures, recipients must continue to adhere to the capital Justification and reporting requirements outlined in the U.S. Treasury’s Compliance and Reporting Guide.

BRONNER has 35 years of experience providing federal grant compliance and accountability services to public sector clients. Click here to learn more about our ARP SLFRF services.