State and Local Fiscal Recovery Funds: New Obligation FAQs Webinar — May 2024
Summary
This is a U.S. Department of the Treasury slide deck titled State and Local Fiscal Recovery Funds: New Obligation FAQs Webinar, dated May 2024. The agenda covers how recipients can meet the obligation deadline of 12/31/2024, how a recipient may use funds to cover personnel costs for an employee through December 31, 2026, and how certain interagency agreements can be considered an obligation. It says Treasury issued an Interim Final Rule in 2023 to amend the definition of obligation and received over 100 comment letters. The deck lists three clarifications on interagency agreements, personnel costs, and contract cost increases, and says the deadline to report certain cost estimates was extended to 7/31/24 for quarterly reporters and 4/30/25 for annual reporters.
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“State and Local Fiscal Recovery Funds: New Obligation FAQs Webinar — May 2024.”
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State and Local Fiscal Recovery Funds:
New Obligation FAQs Webinar
May 2024
2
Today’s agenda
• Background on the new obligation FAQs, in section 17 of
the SLFRF FAQs
• Overview of how recipients can meet the obligation
deadline of 12/31/2024, including clarifications on the
pathways described in the new FAQs
• Overview of how a recipient may use funds to cover personnel
costs for an employee through December 31, 2026
• Overview of how certain interagency agreements can be
considered to be an obligation
• Overview of certain contract cost increases that may be covered
after the obligation deadline
U.S. Department of the Treasury, Coronavirus State & Local Fiscal Recovery Funds
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Background on new obligation FAQs
• In 2023 Treasury issued an Interim Final Rule (“IFR”) to
amend the definition of “obligation” and to provide
additional clarification for recipients
• Treasury received over 100 comment letters on the IFR.
Some of the primary themes were:
• How to cover payroll costs in FY25 and FY26
• Whether MOUs between departments counted as an obligation
• Flexibility to cover contract cost increases
• Treasury has released FAQs to provide additional
clarifications on these items in FAQs Section 17.
https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf
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About the new FAQs
• The new FAQs contain three important clarifications:
1. Treasury considers an interagency agreement to constitute an obligation if the
agreement meets certain conditions
2. Treasury considers a recipient to have an incurred an obligation for personnel
costs for an employee if the employee is serving in a position that was
established and filled prior to the obligation deadline (12/31/24)
3. Treasury is clarifying how recipients may cover cost increases for contracts that
were entered into prior to the obligation deadline, but have cost increases after
the obligation deadline has passed.
• Treasury has also extended the deadline for recipients to report their cost
estimates for certain legal and administrative requirements to 7/31/24 for
quarterly reporters and 4/30/25 for annual reporters and clarified that the
estimate is not mandatory.
• There are no changes to the obligation or expenditure deadlines.
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Timeline for Use of SLFRF Funds
Funds may be used for costs incurred:
1. from March 3, 2021 onward for the eligible uses
described in the 2022 Final Rule; and
2. from December 29, 2022 onward for the eligible Funds for all other eligible
uses described in the 2023 Interim Final Rule uses must be expended by
December 31, 2026
We
are
here
Funds for Title I projects and
Funds must be Surface Transportation projects
obligated by must be expended by
December 31, 2024 September 30, 2026
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Section 1: Obligation Definition
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What is an obligation?
• Treasury implemented the statutory requirement that SLFRF
funds may only be used to cover costs incurred by December
31, 2024, by providing that a cost is considered incurred if a
recipient has incurred an obligation by December 31, 2024.
• Treasury defined “obligation” as “an order placed for property
and services and entering into contracts, subawards, and
similar transactions that require payment.”
• The Obligation IFR amended the definition of “obligation” and
provided additional guidance.
• In section 17 of the SLFRF FAQs, Treasury has provided further
guidance and clarification about what constitutes an
obligation.
• Similar transactions that require payment include certain
interagency agreements (17.6) and payroll expenses (17.7)
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What is an obligation?
An obligation is:
1. An order placed for property and services and entry into
contracts, subawards, and similar transactions that require
payment, which may include:
o An order placed for property or services
o Contract
o Subaward
o Similar transactions that require payment, which may include:
▪ Certain interagency agreements (including MOUs) (see FAQ 17.6)
▪ Under certain circumstances, payroll expenses for recipients’
employees (see FAQ 17.7)
2. A requirement under federal law or regulation or a
provision of the SLFRF award terms and conditions to which
the recipient becomes subject as a result of receiving or
expending SLFRF funds.
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An obligation is NOT:
• An adopted budget or budget amendment
• An appropriation of SLFRF funds
• An executive order
• A resolution
• A written or oral intention to enter into a contract
• A grant of legal authority to enter into a contract
• Claiming funds under the revenue loss category
• Moving SLFRF funds to a general fund as revenue loss but not
further establishing an obligation with those funds by
12/31/24
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Case Study #1: Are budgets an obligation?
→ Case example: A city council has passed its FY24 budget,
which outlines exactly how SLFRF funds are to be used.
→ Question: Has the city obligated its SLFRF funds?
→ Response: No. A budget and/or appropriation authority for
SLFRF funds is not considered an obligation. The city will need
to obligate its funds through at least one of the mechanisms
outlined on slide 8/below and report the project(s) in their
Definition Project and Expenditure report due January 31, 2025
of (quarterly reporters) or April 30, 2025 (annual reporters).
Obligation → An order placed for property or services
→ Contract
→ Subaward
→ Transactions similar to contracts and subawards that require
payment, such as:
→ Interagency agreements (see FAQ 17.6)
→ Personnel costs (see FAQ 17.7)
→ Compliance with certain administrative and legal requirements
of the SLFRF program (see FAQ 17.10)
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Do subrecipients have an obligation deadline?
• No. See FAQ 17.18.
• The obligation deadline applies to the recipient of SLFRF
funds. A cost is considered to have been incurred once a
recipient enters into a subaward that obligates the recipient
to cover that cost.
• Subrecipients are not subject to the December 31, 2024,
obligation deadline.
• Subrecipients and contractors do not need to take additional
steps to obligate funds after entering into a subaward or
contract with the recipient.
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Aren’t revenue loss funds automatically obligated?
• NO. See FAQ 17.15.
• All SLFRF funds under any eligible use category are subject to the
obligation requirements – including funds used under the revenue loss
category.
• This means that, when a recipient uses funds to provide government
services, those funds must be obligated via one of the pathways
discussed on slide 7.
• If a recipient is utilizing revenue loss to pay for government services,
the recipient must report the use as project(s) under expenditure
category 6.1.
• Recipients must enter a project description for any project entered
under 6.1. Revenue loss project descriptions must summarize the
project in sufficient detail to provide an understanding of the major
activities that will occur. Descriptions should establish what the project
seeks to accomplish and should include enough information to make
clear how the recipient determined the project’s eligibility.
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Section 2: Payroll Expenses
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Personnel costs in 2025 and 2026
• Treasury will consider a recipient to have incurred an obligation to use
funds to cover personnel costs for an employee through December 31,
2026, if the employee is serving in a position that was established and
filled prior to December 31, 2024.
• Personnel costs must be expended in connection with an eligible use of
SLFRF. Examples:
• State employees developing broadband projects
• County employees overseeing contracts to build affordable housing
• Eligible personnel costs include:
• All salaries and wages
• Covered benefits (including leave, insurance, and retirement expenses)
• Payroll taxes
• See FAQ 17.7 for more information.
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Can a recipient replace or rearrange personnel after the
obligation deadline?
• Yes. If the position was established and filled by December
31, 2024, a recipient may replace the employee in that
position. The replacement does not need to be immediate.
• Recipients may also reorganize positions within the scope of
an eligible SLFRF project after December 31, 2024.
• Example: if an eligible project employs ten job training specialists on
December 31, 2024, it is permissible for the recipient to use funds to
cover payroll for one of those training specialists who is promoted to
be a supervisor, so long as there are no more than ten positions
covered through SLFRF funds in total.
• Recipients may not use funds to cover any new positions
created after December 31, 2024.
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Case Study #2: Payroll costs increase after obligation deadline
→ Case example: A recipient submitted a report to Treasury
estimating $100,000 in SLFRF payroll costs in 2025 and 2026.
However, in 2025, due to a new collective bargaining
agreement, staff costs have unexpectedly increased. The
recipient would like to consider an additional $50,000 in
SLFRF funds obligated for payroll costs.
→ Question: Can the recipient increase its estimated payroll
obligation to $150,000? If so, how?
Payroll
→ Response: Yes. Eligible personnel costs for employees in
Increase
positions created and filled by December 31, 2024, are
considered obligated, and that amount may be adjusted
based on compensation in effect at the time of payment. A
recipient may raise the salaries of employees in those
positions. However, a recipient may not create new positions
for the project after the obligation deadline. Treasury will
update the Compliance and Reporting Guidance with
additional information about how to report these funds.
→ Relevant FAQs: 17.7 and 17.8
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Case Study #3: Payroll costs are lower than estimated
→ Case example: A recipient submitted a report to Treasury
estimating $5 million in SLFRF payroll costs in 2025 and 2026.
However, due to the completion of a project ahead of
schedule, only $4 million is needed for payroll expenses in
those years.
→ Question: Can the recipient use the unexpended $1 million
attributable to the estimate for another project?
Over-
→ Response: Yes. The recipient may expend the $1 million for
estimating
another eligible use of SLFRF funds. That eligible use must
Costs meet all the requirements of SLFRF, including the requirement
that the recipient incur an obligation for that project by
December 31, 2024. For example, the recipient could apply
those funds to a project for which the recipient entered into a
contract by December 31, 2024 and for which the recipient
originally used local funds.
→ Relevant FAQs: 17.8 and 17.19
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Section 3: Estimated Expenses
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When would a recipient submit cost estimate(s) to Treasury?
• There are three separate kinds of estimates, which are for:
• payroll costs to be expended in 2025 and 2026.
• certain administrative and legal costs to be expended in 2025 and 2026 (or for
award closeout).
• costs to cover contract change orders and contingencies.
• Recipients are not required to report an estimate of these expenses. But
they may benefit from doing so if:
• They plan to use SLFRF funds for such costs, and want to ensure that those
funds are not returned to Treasury as unobligated, AND
• Those funds are not reported to Treasury as obligated through another project
(such as a contract or interagency agreement).
• Estimates submitted to Treasury prior to the obligation deadline will
ensure that those funds are treated as obligated. Therefore, the recipient
will be able to spend SLFRF funds on the relevant expenses in 2025 and
2026.
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What legal and administrative costs are eligible for purposes of this
provision?
• As explained in the Obligation IFR and our previous webinar, certain legal and
administrative costs are considered obligated as a result of receiving or
expending SLFRF funds.
• These include:
• Reporting and compliance requirements, including subrecipient monitoring
• Single Audit costs;
• Record retention and internal control requirements;
• Property standards;
• Environmental requirements; and
• Civil rights and nondiscrimination requirements.
• If these costs are not reported as obligated through another project, recipients
can submit to Treasury an estimate of those anticipated costs to ensure that
the funds can be retained after the obligation deadline and used for those
purposes in 2025 and 2026.
• See FAQs 17.10 through 17.13 for more information.
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Summary of Estimate Options
Personnel Cost Estimate Admin & Legal Cost Estimate
BOTH: Not mandatory. Option is available to ensure funds are treated as obligated.
Submission deadline: Submission deadline:
• 1/31/2025 (quarterly reporters) • 7/31/2024 (quarterly reporters)
• 4/30/2025 (annual reporters) • 4/30/2025 (annual reporters)
(extension from previous deadline)
BOTH: Requires reasonable justification for estimate(s) and report to Treasury.
BOTH: No penalty for inaccurate estimate(s) if the initial estimate(s) were reasonable.
• If actual expenses are greater than amount estimated, recipient can reclassify
funds from other SLFRF projects, use program income, or use non-SLFRF sources, to
pay for those expenses.
• If actual expenses are lower than the amount estimated, recipients can reclassify
funds to other eligible uses of SLFRF funds obligated before December 31, 2024.
Explanation: FAQs 17.7, 17.8 Explanation: FAQs 17.11, 17.12, 17.13
Note: see FAQ 17.16 for explanation of estimates for costs to cover contract change orders and contingencies.
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Case Study #4: Estimating certain legal & administrative costs
→ Case example: A recipient plans to hire an independent
auditor to conduct a Single Audit that will include SLFRF
funds. The Single Audit will be conducted in 2025 and the
recipient has not yet selected an independent auditor.
→ Question: Can the recipient use SLFRF funds to pay this
independent auditor?
→ Response: Yes. Single Audit costs are considered obligated
Legal & because they stem from a federal requirement which the
Admin Cost recipient became subject to as a result of receiving SLFRF
Estimate funds. The recipient should (1) determine the amount of
SLFRF funds the recipient estimates it will use for these
expenses, (2) document a reasonable justification for this
estimate, (3) report that amount to Treasury with an
explanation of how the amount was determined, and (4)
report at award closeout the final amount expended for these
costs.
→ Relevant FAQs: 17.10 through 17.13
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Section 4: Interagency Agreements
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Does an interagency agreement (IAA) count as an obligation?
• Yes, if it meets certain conditions.
• An interagency agreement finalized by 12/31/2024 can be used to obligate funds
that a government agency will expend in 2025 and 2026.
• Eligible agreements include memoranda of understanding (MOU) or agreement
(MOA). The agreement must meet these conditions:
ONE requirement from Column A: ALL requirements from Column B:
Imposes conditions on the use of funds by Has specific requirements (e.g., scope of
recipient agency, department, or part of work)
government
Governs provision of funds from one agency, Is signed by the parties or evidences assent of
department, or part of government to another parties
Governs the procurement of goods or services Does not disclaim binding effect or state that
it doesn’t create rights or obligations
• See FAQ 17.6 for more information.
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Case Study #5: Who can an interagency agreement be between?
→ Case example: A county commissioner has authority
over the disposition of federal financial assistance
available to the county. The commissioner wants to
create an MOU between her office and the county’s
Department of Education for local community colleges
to provide pre-apprenticeship training for local workers
Parties to disproportionately impacted by the COVID-19
Interagency pandemic.
Agreement → Question: Would this MOU constitute an obligation?
→ Response: Yes, if the MOU meets the conditions
outlined in FAQ 17.6 and explained on the prior slide.
→ Relevant FAQ: 17.6
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Case Study #6: Can an existing MOU be used to obligate SLFRF funds?
→ Case example: A county board has an existing MOU in place
to provide social services to several cities within its
jurisdiction using SLFRF funds. The MOU has a clear scope of
work and creates clear obligations for those cities.
→ Question: Does the existing MOU permit the county to report
the funds for the project as obligated so that SLFRF funds may
be used to cover program costs expended in 2025 and 2026?
Existing → Response: Yes, so long as the MOU meets the requirements
MOU previously listed, was entered into on or after March 3, 2021,
and the services are SLFRF-eligible expenses. It may also be
possible to modify the MOU before the obligation deadline to
meet the necessary requirements.
→ Relevant FAQ: 17.6
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Section 5: Modifying Contracts
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What Flexibilities Exist for Contracts after the Obligation 28
Deadline has Passed?
Change orders for an existing contract
– Recipients can fund change orders—including cost adjustments—with SLFRF if the contract or
agreement includes a provision allowing for the change order in question. A recipient can also fund a
cost increase with SLFRF if the cost increase is permitted under a contingency clause in the contract or
agreement. See FAQ 17.16.
Amend an existing contract
– Recipients may amend existing contracts after the obligation deadline, so long as the amended contract
is within substantially the same scope and for substantially the same purpose as the original contract. If
those requirements are met, SLFRF funds may be used to cover cost increases contained in the
amended contract. See FAQ 17.16.
Replace an existing contract
– As explained in the obligation IFR, recipients may replace a contract after the obligation deadline under
one of three circumstances:
1. Contract terminated due to business default, closure, or inability to perform
2. Mutual agreement to terminate
3. Recipient termination for convenience when contract was not properly awarded
– The Replacement contract must be within substantially the same scope and for substantially the same
purpose as the original contract. See FAQ 17.17. In that case, recipients may use SLFRF funds to cover
increased costs of the replacement contract or subaward.
Recipients may reclassify funds from another SLFRF project to pay for any such modifications. See FAQ
17.19. Recipients will also be able to submit an estimated cost for change orders before the obligation
deadline is met. Additional information on submitting estimates will be provided in future webinars
and reporting guidance.
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Summary of Contract Flexibilities 29
Why would a recipient When can a recipient use
use this? this? Restrictions
Change order
Cost increase or other
or Contract expressly Only restrictions in contract
reason anticipated in
contingency provides for the option. and Uniform Guidance.
contract.
Amended contract must be
Recipient wants to Whenever the contract
Amend within substantially the same
retain same contractor, permits, including after the
contract scope and for substantially the
but needs to make obligation deadline has
same purpose as the original
unanticipated changes. passed.
contract.
One of three
Replacement contract must be
circumstances in
Recipient wants to within substantially the same
Replace Obligation IFR (including
terminate contract and scope and for substantially the
contract mutual agreement to
use a new contractor. same purpose as the original
terminate for
contract.
convenience).
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Case Study #7: Can SLFRF be used to fund change orders?
→ Case example: A city is using $1 million in SLFRF funds to build
affordable housing in 2025 and 2026. However, in 2025 its
discovered that the project needs to be updated via change
order and the total cost is now $1.5 million.
→ Question: Can the city use SLFRF funds to cover the cost of
the change order?
→ Response: Change orders and contingencies are allowed IF
Change they were contemplated in the original contract. In this case,
Orders the City’s contract included standard change order processes
and language and thus they may use SLFRF funds for the
increased cost.
→ Consideration: Do your contracts speak to the possibility of a
change order? There is still time to update them ahead of the
obligation deadline.
→ Relevant FAQ: 17.16
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Case Study #8: Contractor Issue
→ Case Example: A recipient has awarded a contract for a capital
expenditure. In March 2025, the contractor ceases business
unexpectedly. The project is only 50% completed. The
recipient wants to enter into a new contract with a different
contractor to complete the project.
→ Question: Can the recipient enter into a new contract after
the obligation deadline with a new contractor to complete
Replacement this project?
of Contracts → Response: Yes, so long as the new contract is within
or Subawards substantially the same scope and for substantially the same
purpose as the original contract.
→ Relevant FAQ: 17.17
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Section 6: Q&A
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Recap
• Treasury has released FAQs to provide additional clarifications on how to
meet the obligation deadline of December 31, 2024. These FAQs explain:
• That Treasury considers an interagency agreement to constitute an
obligation if the agreement meets certain conditions
• That Treasury considers a recipient to have an incurred an obligation for
personnel costs for an employee if the employee is serving in a position that
was established and filled prior to the obligation deadline (12/31/24)
• How recipients may cover cost increases for contracts that were entered
into prior to the obligation deadline, but have cost increases after the
obligation deadline has passed.
• Treasury has also extended the deadline for recipients to report their cost
estimates for certain legal and administrative requirements to 7/31/24 for
quarterly reporters and 4/30/25 for annual reporters.
• These FAQs can be found in the SLFRF FAQs in the new Section 17.
https://home.treasury.gov/system/files/136/SLFRF-Final-Rule-FAQ.pdf
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For More Information about SLFRF:
Please visit Treasury’s State & Local website
at www.treasury.gov/SLFRF
Thank you. For Media Inquiries:
Please contact the U.S. Treasury Press Office
at (202) 622-2960
For General Inquiries:
Please email SLFRF@treasury.gov
U.S. Department of the Treasury, Coronavirus State & Local Fiscal Recovery Funds
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