Treasury Department Publishes Final Rule on State/Local COVID Relief Funds, Broadens Eligible Water & Sewer Uses

Jan 12, 2022

The U.S. Treasury – the federal department implementing the COVID-19 Relief for State and Local Fiscal Recovery Funds (SLFRF) program that was signed into law as part of the American Rescue Plan Act (ARPA) – published its final rule for the program on January 6. The SLFRF program funding totaled $350 Billion, which is being distributed via formula grants to state and local governments for COVID-19 expenses, lost revenues and, significantly, water, sewer or broadband infrastructure.

The final rule takes effect on April 1st. Since the law was signed in March 2021, states, tribes, U.S. territories, cities, and counties have begun implementing their Fund allocations at Treasury’s encouragement following interim guidance released last spring. The final rule provides important clarity and seeks to broaden flexibility further to pursue a wider range of uses to respond to local public health and economic needs. Interested utilities and communities are encouraged to review the final rule and overview.

Notable changes from the interim guidance include broadening eligible water and sewer infrastructure uses. The interim guidance specified that any project eligible under the CWSRF or DWSRF was eligible; the final rule emphasizes even broader eligibility emphasizing stormwater infrastructure, lead remediation, aid for wells and septic systems, cybersecurity, and resilience. Specific details can be found on pages 37-38 of the final rule overview and pages 264-293 of the final rule.

Infrastructure sectors such as transportation that are not eligible for the SLFRF have been making the case with Treasury and Congress that the use of SLFRF for “water, sewer, and broadband” should be broadened to all types of infrastructure. However, the final rule maintains that only water, sewer, and broadband are eligible infrastructure types. States and localities seeking greater flexibility are disappointed with this change, but beneficially for the clean water sector this could lead to greater spending on water and sewer projects.

Other changes that could impact public clean water agencies include the directives around providing premium pay. The SLFRF can be used to support premium pay for workers providing essential work. The final rule adopts a broad definition of “essential workers” which could include public clean water agency staff; however, it affirms a more narrow definition of “essential work” – that it must be performed non-remotely and involve regular interactions with or physical handling of items by patients, the public, or coworkers which could limit eligibility with in a utility or other public department. More information on these limitations can be found on pages 35-36 of the overview and pages 219-233 of the final rule.

Status of Fund Implementation

SLFRF dollars are being distributed in two traches. Around $245 Billion has been distributed by Treasury in 2021, and the remainder will be made available beginning in May 2022 to receiving states, tribes and local governments.

The rate at which distributed funds have been spent down so far by receiving state and local governments varies widely around the country. Nationally, 70% of the dollars states have received so far are estimated to have been appropriated. Eighteen states have allocated SLFRF dollars to water and sewer infrastructure so far, with a national average of 5 percent of state funding going to water/sewer. More information on how states are spending these funds is available here from the nonpartisan Center on Budget and Policy Priorities.

NACWA members to date have had mixed success accessing these funds for water and sewer projects within their states and communities. A particular limitation of the Fund for some public utilities has been that the dollars are sent out via formula to states and units of local government – not special districts. NACWA and many special districts advocated for these entities receiving allocations directly while the ARPA legislation was being developed, but Congress was concerned that trying to determine an appropriate distribution of funds to special districts would complicate and slow the relief process. The final rule provides no changes relative to special districts. They do remain eligible to pursue funding through direct recipient states and local governments.

Members with questions on this or other COVID-19 relief programs should contact Kristina Surfus, NACWA Managing Director of Government Affairs. 

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