Ppr Int Bb2Cb8292A3B0A73 Guidance On Distribution Of Funds To Non Entitlement Units Of Loc - Ppr Int Bb2Cb8292A3B0A73 Guidance On.

Summary

Treasury guidance to States on distributing Coronavirus Local Fiscal Recovery Fund money to non-entitlement units of local government (NEUs), the smaller local governments for which the American Rescue Plan Act of 2021 appropriates $19.53 billion. Each State must allocate its payment among its NEUs by population share within 30 days, unless it obtains an extension, and no NEU may receive more than 75 percent of its budget as of January 27, 2020; in Treasury's example a town allocated $100,000 with a $100,000 budget gets $75,000 and the State returns $25,000. The guidance explains which towns and townships are eligible in the 12 strong-MCD and eight weak-MCD States, lists the documents States must collect, bars added conditions or reimbursement-basis funding, and sets an interim report due August 31, 2021. Treasury pays in two tranches at least 12 months apart.

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Document type: Ppr Int Bb2Cb8292A3B0A73 Guidance On Distribution Of Funds To Non Entitlement Units Of Loc
Case: Ppr Int Bb2Cb8292A3B0A73 Guidance On Distribution Of Funds To Non Entitlement Units Of Local Government F3C0Bcd520

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Full text

CORONAVIRUS LOCAL FISCAL RECOVERY FUND:
GUIDANCE ON DISTRIBUTION OF FUNDS TO NON-ENTITLEMENT UNITS OF LOCAL GOVERNMENT

U.S. DEPARTMENT OF THE TREASURY

The American Rescue Plan Act of 2021 (ARPA) appropriates $19.53 billion to States for distribution to tens
of thousands of “non-entitlement units of local government” (NEUs). ARPA directs the Department of the
Treasury (Treasury) to make payments to each State for distribution to NEUs within the State. Treasury is
providing the following guidance to assist States with their distribution of these funds to NEUs.

Statutory Overview

Sections 602 and 603 of the Social Security Act (the Act), as added by section 9901 of ARPA, establish the
Coronavirus State Fiscal Recovery Fund (State Fiscal Recovery Fund) and Coronavirus Local Fiscal
Recovery Fund (Local Fiscal Recovery Fund), respectively, which provide significant funding to help states
and localities address the economic and health consequences of the pandemic. Sections 602 and 603 of
the Act provide for Treasury to make payments directly to States, territories, Tribal governments, and
various local governments, including counties and cities designated as metropolitan cities. In recognition
of the significant differences across States in the ways that local governments are organized and the
extent of the services they provide to their populations, Congress also provided for Treasury to make
payments to the States to allocate and make this funding available to smaller units of general local
governments, NEUs.

A State is required to allocate and distribute the Local Fiscal Recovery Fund payment received from
Treasury to each NEU in the State an amount that bears the same proportion to the amount of such
payment as the population of the NEU bears to the total population of all the NEUs in the State. 1
However, the total amount to be distributed to an NEU may not exceed the amount equal to 75 percent
of its most recent budget as of January 27, 2020. 2 Each State has 30 days to distribute these funds to
NEUs, but Treasury may provide extensions of this deadline, as outlined below.

Treasury will make payments to States from the Local Fiscal Recovery Fund for distribution to NEUs in two
tranches, with the Second Tranche payment to be made no earlier than 12 months after the date on
which the First Tranche payment is paid to the State. 3

Prior to Distribution

Before distributing funds to NEUs, States will need to request payment from Treasury, identify eligible
NEUs within their State, calculate allocations, and collect certain documents from NEUs.

• Request the State’s payment from Treasury. A State’s submission of a request for payment from
the State Fiscal Recovery Fund under section 602 of the Act will suffice for Treasury to initiate
payment to the State from the Local Fiscal Recovery Fund for distribution to the State’s NEUs.
Payment of this amount will be made to the bank account designated by the State with respect to
the State Fiscal Recovery Fund.

1
See Section 603(b)(2)(C)(i) of the Act.
2
See Section 603(b)(2)(C)(iii) of the Act.
3
See Section 603(b)(7) of the Act.

1
Aggregate NEU allocations to each State can be found on treasury.gov/SLFRP, along with the
allocation methodology.

• Identify eligible NEUs. States should identify eligible NEUs by following these guidelines:

o Treasury has provided on its website a list with names and population estimates for each
local government (List), categorized by State, based on data from the Bureau of the
Census (Census Bureau) with some clarifications by Treasury. 4

o The List includes both “incorporated places” and “minor civil divisions” (MCDs).

o All incorporated places on the List are eligible for payment.

o MCDs serve as the primary subdivisions of a county in some States and are commonly
known as towns (in New England, New York, and Wisconsin), townships, and districts. 5 In
12 States—referred to by the Census Bureau as “strong-MCD” States—these MCDs
generally perform a wide set of general purpose local government functions. In eight
other States—referred to by the Census Bureau as “weak-MCD” States—the MCDs
generally play less of a governmental role but are still active governmental units. The
other 30 States do not have governmentally functioning MCDs.

o States should approach the eligibility of their incorporated places and MCDs on the List as
follows:

 For the 12 strong-MCD States 6 and 30 States without governmentally functioning
MCDs, a State should consider all the local governments on the List as eligible for
payment.

 For the eight weak-MCD States, 7 a State should consider all incorporated places
on the List as eligible for payment.

In order to determine the eligibility of its MCDs, the State should undertake a
facts-and-circumstances test to determine whether the MCD has the legal and
operational capacity to accept ARPA funds and provides a broad range of services
that would constitute eligible uses under ARPA. States should consider specific
authorities and the size and composition of the budgets of these MCDs in making

4
Treasury’s compilation of the List, along with its broader definitional and data methodology, can be found on the
Treasury website. For ease of use, Treasury is also providing a list of local governments excluding weak MCDs for the
eight weak-MCD States.
5
The MCDs function as active governmentally functioning units in all or part of 20 States: Connecticut, Illinois,
Indiana, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey,
New York, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, Vermont, and Wisconsin.
6
These States are Connecticut, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New
York, Pennsylvania, Rhode Island, Vermont, and Wisconsin.
7
These States are Illinois, Indiana, Kansas, Missouri, Nebraska, North Dakota, Ohio, and South Dakota.

2
this determination. MCDs in these States that lack the capacity or do not provide
the broad range of services that would constitute eligible uses under ARPA
should not be eligible for a NEU distribution. States may categorically exclude all
weak MCDs if none of them provide the relevant types of services. Treasury will
defer to the States’ determination in this regard given their superior
understanding of the particularities of their local governments’ authorities and
operations.

Before making initial distributions to NEUs, each weak-MCD State should identify on the
State’s website the names of MCDs that the State removed, accompanied by an
explanation of the State’s determination.

As stated above, strong-MCD States and States without governmentally functioning
MCDs should not undergo this facts-and-circumstance test. In addition, weak-MCD States
should not undergo a facts-and-circumstances test with respect to their incorporated
places.

• Calculate initial allocations.

o As stated above, ARPA requires States’ allocations to NEUs to be based on the proportion
of the population in the NEU as a share of the total population of all NEUs in the State.
This requirement can be represented by the following formula:
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑜𝑜𝑜𝑜 𝑡𝑡ℎ𝑒𝑒 𝑁𝑁𝑁𝑁𝑁𝑁
× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑁𝑁𝑁𝑁𝑁𝑁 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑜𝑜𝑜𝑜 𝑎𝑎𝑎𝑎𝑎𝑎 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁

o States must use the population counts in the List, since these reflect the most recent
data available from the Census Bureau. 8

o In some States, the boundaries of some NEUs overlap with or encompass other NEUs
within the State, typically resulting in overlapping populations between the larger
“parent” NEU and the subsidiary NEU. 9 An example is a township that encompasses a
city. States have the discretion to divide the population of overlapping NEUs in a number
of ways for the purpose of the allocation, but Treasury suggests consideration of the
following:

 The default approach is for the subsidiary NEU’s population to be subtracted
from the larger “parent” NEU for purposes of this allocation. For ease of use, the

8
See Section 603(b)(6) of the Act. For the few entities with no population data provided by the Census Bureau,
States should use data as a State determines appropriate.
9
These overlapping jurisdictions generally occur in the 20 States with active governmentally functioning
incorporated places and MCDs.

3
List reflects this default approach by providing the net population of the “parent”
NEU excluding the population of all its subsidiary components. 10

 Alternatively, States may decide to allocate a different split of the overlapping
population between NEUs (e.g., 50-50 split for two overlapping NEUs). This
decision should be made based on a facts-and-circumstances test that considers
the extent to which the NEU provides services that would constitute eligible uses
under the Local Fiscal Recovery Fund, including considering the size and
composition of the NEU’s budget. States should not allocate the entire
overlapping population to the larger “parent” NEU. 11

 Double counting when determining NEU allocations is inadvisable.

• Establish a process for NEUs to submit requests for payment. States should establish a process
that will allow NEUs to provide information and documentation necessary to disburse funds to
NEUs. The information and documentation collected by the State prior to initiating payment must
include the following:

o Local government name, Entity’s Taxpayer Identification Number, DUNS number, and
address
o Authorized representative name, title, and email
o Contact person name, title, phone, and email
o Financial institution information (e.g., routing and account number, financial institution
name and contact information)
o Total NEU budget (defined as the total annual budget, including both operating and
capital expenditure budgets, in effect as of January 27, 2020) or top-line expenditure
total (in exceptional cases in which the NEU does not adopt a formal budget)
o Award terms and conditions agreement (as provided by Treasury to be signed)
o Assurances of compliance with Title VI of the Civil Rights Act of 1964 (as provided by
Treasury to be signed)

• Receive requests for payment from NEUs. States should receive and process requests for
distribution from NEUs that include the information and documentation indicated above. The
State must confirm the NEU is not excluded or disqualified in compliance with 2 C.F.R. Part 180
and Treasury’s implementing regulation at 31 C.F.R. Part 19. States should advise the NEU to
retain a copy of its award agreements for upload with the NEU’s first report to Treasury due
October 31, 2021. Pursuant to 2 C.F.R. Part 25, States should advise the NEU to register in
SAM.gov as soon as possible after receiving the award if the NEU is not already registered.

10
For consolidated NEU governments, the full populations of the local government may be listed twice. However,
States are advised not to double count the population but rather to allocate a split between the two governments
based on the facts-and-circumstances test outlined. For consolidated NEU-metropolitan city governments, States
similarly may exercise discretion with respect to the population to allocate to the NEU. As a reminder, metropolitan
cities are paid directly by Treasury through a different allocation.
11
See section 603(b)(4) of the Act.

4
As part of this process, States should assign each NEU a unique “NEU Recipient Number” starting
with the two letter State abbreviation followed by four numeric digits (e.g., AZ0231). States
should advise the NEU to retain this NEU Recipient Number as an identifying number for the
lifecycle of the program, including for reporting purposes.

• Determine whether the “75 percent cap” applies. Section 603(b)(2)(C)(iii) of the Act and the
Interim Final Rule (IFR) provide that each NEU’s total award (i.e., the total of distributions under
both the First and Second Tranche) is capped at 75 percent of its total annual budget, including
both operating and capital expenditure budgets, in effect as of January 27, 2020 (“reference
budget”). This involves several steps:

o Receive a budget total. As part of the request for payment, NEUs should submit a top-line
total of the NEU’s reference budget, certified by an authorized representative of the
NEU. If a NEU does not adopt a formal budget, States should allow the NEU to certify its
most recent annual total expenditures as of January 27, 2020 in lieu of the NEU’s budget
total. States should advise the NEU that these numbers may be verified against a copy of
the appropriate budget documents submitted in the NEU’s first report to Treasury.

o Compare budget total with allocation. States should compare the total allocation to the
NEU (across distributions under both the First and Second Tranches) against the NEU’s
reference budget.

o Return funds to Treasury, if applicable. If an NEU’s total allocation is found to be more
than 75 percent of the NEU’s reference budget, the State must return the amount of the
allocation in excess of the NEU’s reference budget to Treasury. For example, if Town A is
allocated $100,000 and its reference budget totaled $100,000, Town A would be entitled
to a total distribution of $75,000. ARPA requires the State to return $25,000 in total to
Treasury. Because payments are made by Treasury in two tranches and distributed by
States in at least two distributions, the State would pay $37,500 to Town A in the first
distribution and the State would return $12,500 to Treasury from the First Tranche
amount. States should wait to return these funds to Treasury until after submitting their
interim report due August 31, 2021 (detailed below).

• Process requests to transfer to the State. If a State receives notification from an NEU that it
would like to decline its funding allocation and transfer funds to the State under Section 603(c)(4)
of the Act, Treasury will consider this action as a cancellation of the award on the part of the
eligible NEU and a modification of the award to the State. A State will not be required to transfer
the amount of the payment to the NEU just for the NEU to transfer it back to the State. As part of
this process, the NEU must provide a signed notice to the State, which the State must transmit to
Treasury as part of its interim report due August 31, 2021 (or as part of a subsequent report, if
applicable). If the NEU does not provide such notice, it will remain legally obligated under the
award with respect to accounting for the uses of the funds and the reporting on such uses.
Treasury will provide a standard notice form that will be required for this use.

Initial Distribution from First Tranche Amount

5
ARPA provides that States must make an initial distribution of funds to NEUs no later than 30 days after
receiving a payment from Treasury for purpose of distribution to NEUs, unless the State requests and
receives an extension. There are several steps that States should take in this phase:

• Disburse the initial distribution of payments. States should disburse the initial distribution of
payments to the NEUs based on the allocations calculated in accordance with the process
outlined above.

Under the IFR, States may not impose additional conditions or requirements on distributions to
NEUs, beyond those permitted by ARPA, the IFR, and Treasury’s guidance. For example, States
may not impose stricter limitations than permitted by statute or Treasury regulations or guidance
on an NEU’s use of funds based on the NEU’s proposed spending plan or other policies. States are
also not permitted to offset any debt owed by the NEU against the NEU’s distribution. Further,
States may not provide funding to NEUs on a reimbursement basis.

• Record key information for reporting purposes. States should keep records of amounts allocated
and, separately, amounts paid to each NEU. States will be required to submit information on their
NEU disbursements with their interim report on the State Fiscal Recovery Fund program.

• Provide guidance to NEUs on their requirements to Treasury. States should direct NEUs to
section 603 of the Act, the IFR, and this guidance, along with documents on the Treasury website,
which include fact sheets and regularly updated FAQs.

• Apply for extensions, if necessary. If a State submits a certification in writing that it faces an
excessive administrative burden in distributing funds to an NEU and requests an extension, in
accordance with Section 603(b)(2)(C)(ii)(I) of the Act, Treasury will grant the State a 30-day
extension of the deadline for distributing funds. Treasury may grant requests from States for
further extensions. More information will be forthcoming on the extensions process.

Subsequent Distribution from First Tranche Amount

If a State has made reasonable efforts to contact an NEU that remains unresponsive (i.e., the NEU has
neither requested funding nor declined its allocation and requested a transfer to the State), the State
may issue a subsequent distribution of the funds that had been allocated to such non-responsive NEUs
among residual NEUs (defined below). If a State provides for such a subsequent distribution, the State
should follow the steps below:

• Gather required information. States should identify the amount of remaining funds, which is the
amounts allocated to NEUs that have been non-responsive (“remaining funds”). States should
also identify NEUs whose initial allocation was below the 75 percent budget cap and which either
(1) requested funding for itself or (2) declined funding for itself and requested a transfer to the
State under Section 603(c)(4) (“residual NEUs”).

• Allocate remaining funds. States should allocate remaining funds among residual NEUs according
to the formula below.

𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑝𝑝𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 𝑜𝑜𝑜𝑜 𝑡𝑡ℎ𝑒𝑒 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 𝑁𝑁𝑁𝑁𝑁𝑁
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑁𝑁𝑁𝑁𝑁𝑁 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑜𝑜𝑜𝑜 𝑎𝑎𝑎𝑎𝑎𝑎 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁

6
• Apply the 75 percent budget cap. Residual NEUs may only receive payments (across both First
and Second Tranches, inclusive of distributions from remaining funds) up to the 75 percent
budget cap, as described above. Amounts allocated to residual NEUs in excess of their 75 percent
budget cap must be returned to Treasury. The excess amounts from the First Tranche should be
returned in the post-distribution phase (as detailed below).

• Disburse the subsequent distribution. States should make the subsequent distribution to NEUs
after allocating the remaining funds. As discussed above, States are prohibited from putting
conditions or requirements on these distributions beyond those permitted by ARPA, the IFR, and
Treasury’s guidance.

• Record key information for reporting purposes. States should keep records of which residual
NEUs received a subsequent allocation and distribution, and the amount of the subsequent
allocation and distribution. States will be required to submit information on their subsequent
distribution with their periodic reports to Treasury on the State Fiscal Recovery Fund program.

Post-Distribution

States will be asked to submit information on their allocations and distributions to NEUs with their
periodic reports to Treasury under the State Fiscal Recovery Fund program, including the interim report
on August 31, 2021. NEUs are also required to submit periodic reports to Treasury on their use of funds.

• Submit an interim report (August 2021). As part of the interim report required to be submitted to
Treasury by August 31, 2021, which is a requirement under ARPA and the IFR, each State will be
asked to provide an update on distributions to individual NEUs, including whether the NEU has (1)
received funding; (2) declined funding and requested a transfer to the State under Section
603(c)(4) of the Act; and (3) not taken action on its funding. States should be prepared to report
on their information, including the following:
o NEU name
o NEU DUNS number
o NEU address
o NEU email address
o NEU Recipient Number (a unique identification code for each NEU assigned by the State
to the NEU as part of the request for funding)
o Initial allocation and, if applicable, subsequent allocation to the NEU (before application
of the 75 percent cap)
o Total NEU budget (as submitted by the NEU to the State as part of the request for
funding)
o Amount of the initial and, if applicable, subsequent allocation above 75 percent of the
NEU’s reference budget which will be returned to Treasury
o Payment amount(s)
o Payment date(s)

For each eligible NEU that declined funding and requested a transfer to the State under Section
603(c)(4) of the Act, the State must also attach a form signed by the NEU, as detailed above.

7
Weak-MCD States should also list NEUs that the State deemed ineligible.

• Submit a first quarterly report (October 2021). As part of the first quarterly report required to be
submitted to Treasury by October 31, 2021, which is a requirement under ARPA and the IFR, each
State will be asked to provide information on subsequent distributions to NEUs, if applicable.

• Return excess amounts (August-October 2021). States should arrange with Treasury to return
excess amounts that were not distributed to the NEUs. Treasury will provide instructions to
States on the return of funds.

• Provide guidance to NEUs on their reporting requirements to Treasury (October 2021). As prime
recipients of a Federal award, NEUs are required to report to Treasury on the use of funds. States
should ensure each NEU has the reporting guidance provided by Treasury, which is forthcoming.
NEUs’ first report is due to Treasury by October 31, 2021. In addition to other reporting
requirements, NEUs will be asked to provide:

o NEU Recipient Number (a unique identification code for each NEU assigned by the State
to the NEU as part of the request for funding)
o Copy of signed award terms and conditions agreement
o Copy of signed assurances of compliance with Title VI of the Civil Rights Act of 1964
o Copy of actual budget documents validating the top-line budget total provided to the
State as part of the request for funding

• Await Second Tranche amount (Spring-Summer 2022). Treasury will distribute the Second
Tranche of payments to States for distribution to NEUs no earlier than 12 months after the date
on which the First Tranche of payments is paid to the State. More information will be
forthcoming closer to the date.

Additionally, States may be asked to facilitate Treasury’s communications with NEUs, particularly
distributing information on NEUs’ use of funds and reporting requirements.

Update (6/30/2021): Treasury updated its guidance on the 75 percent budget cap calculation, consistent
with additional Treasury guidance issued on June 30, 2021, and provided a clarification on recipients of
the subsequent distribution.

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