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Revenue Replacement

A local government may expend Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) on a board range of general government services under the Revenue Replacement allowable use category.  There are two ways to proceed under this category: a unit may either elect to take the $10 million Standard Allowance or it may calculate actual revenue loss according to U.S. Treasury’s formula outlined in the Final Rule.

The Standard Allowance allows a local government to expend up to $10 million of its CSLFRF funds in the Revenue Replacement category without having to demonstrate any actual lost revenue. US Treasury has stated that a local government must elect either the Standard Allowance or the Formula Approach for Revenue Replacement in the April 30, 2022 Project and Expenditure Report. This is a one-time election that cannot be changed.

Importantly, by electing the standard allowance and spending CSLFRF funds as revenue replacement does not convert CSLFRF funds into general revenue funds. The CSLFRF funds remain grant funds and must be expended in compliance with the the grant award terms and conditions.

  • May a local government elect the Standard Allowance if it did not experience any revenue loss? Yes; there is no requirement to prove a loss in revenue. Treasury will presume that each jurisdiction experienced up to $10 million in lost revenue. If a local government received less than $10 million in CSLFRF funds, it may take the Standard Allowance for the full amount it received. For example, if a local government received $1.2 million, it may expend up to $1.2 million as revenue replacement.
  • If a local government elects the Standard Allowance does it have to spend all of its CSLFRF funds in the Revenue Replacement category? No. Electing the Standard Allowance just indicates the maximum amount a local government may spend in the Revenue Replacement category, but it does not require a local government to spend all, or even any, of its CSLFRF funds in the Revenue Replacement category.
  • Are CSLFRF funds expended under the Revenue Replacement category subject to the Uniform Guidance? Likely, yes. As of 4/5/2022, Treasury has not exempted funds expended for general government services under the Revenue Replacement category from the Uniform Guidance. The safest bet is to assume the Uniform Guidance applies until Treasure says otherwise.
  • What are the benefits of expending CSLFRF on general government services in the Revenue Replacement category? A general government service includes any service traditionally provided by government that a local government has state law authority to engage in, including public enterprise activities. Spending funds in the Revenue Replacement category allows a local government to undertake a wide array of potential expenditures, including within this covering the salaries and fringe benefits of local government employees; park improvement projects; purchasing equipment and supplies for local government operations; renovating public buildings and facilities; and many more. U.S. Treasury has also provided a list of general government services that a local government may presume are eligible uses of CSLFRF funds, including:
    • maintenance or pay-go funding building of infrastructure, including roads;
    • modernization of cybersecurity, including hardware, software, and protection of critical infrastructure;
    • health services; environmental remediation; school or educational services; and
    • the provision of police, fire, and other public safety services (e.g., purchasing a fire truck or police vehicles, purchasing other equipment, covering salaries of public safety personnel).
  • Is there a strategic way to expend CSLFRF funds (i.e., how do we make the best use of funds and trigger the fewest compliance requirements)? A local government may choose to allocate CSLFRF funds to those projects and expenditures that will trigger the fewest Uniform Guidance compliance requirements, thereby limiting the administrative burden. For example, instead of purchasing new police vehicles, which would trigger UG procurement and property management standards, a local government may opt to fund personnel salaries. In doing so, the unit will have freed up general fund revenue that would have otherwise been used to pay for salaries. This additional general fund revenue could then be expended on the purchase new police vehicles, which would only trigger state law procurement and property disposal requirements.
  • May CSLFRF funds be spent to cover employee salaries and fringe benefits? 2 C.F.R. 200.430 & .431 authorize a local government to spend Federal grant funds to cover employee salaries and fringe benefits when certain conditions are met. Specifically, salary expenditures must be reasonable and fringe benefits are allowable only if a specific covered benefit is required by law or provided as part of an established policy. Allowable fringe benefits may include: covering leave during authorized absences (annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave); employer contributions or expenses for social security; employee life, health, unemployment, and worker’s compensation insurance; individual retirement account contributions, and similar benefits. Although the Uniform Guidance allows pension plan contributions, the terms and conditions of the ARP award expressly prohibit lump sum deposits into pension funds. Contributions to individual employee retirement accounts are allowable.
  • May Revenue Replacement CSLFRF funds be expended on capital improvement projects? Yes, CSLFRF may be spent on capital improvement projects under the Revenue Replacement category, and no preapproval from Treasury is necessary to engage in a capital improvement project. Additionally, unlike capital expenditures within the Address COVID Public Health & Negative Economic Impact category, there is no requirement to provide written justification for capital improvement projects costing more than $1 million.
  • May a unit combine CSLFRF with other revenue sources to fund a project? Yes. Treasury allows the “blending and braiding” of funds to complete eligible projects. Recipients may undertake projects on their own using various revenue sources, pool funds with other recipients, or contract with a subrecipient to complete eligible projects. Importantly, CLFRF may not be used to fund debt services or cover borrowing costs. When completing a capital project, CLFRF can fund the cash portion of the project (the “pay-go” portion), but other revenue sources must fund any debt or borrowing costs.
  • May CSLFRF funds available under the Revenue Loss category be used to meet the non-federal match or cost-share required of other federal programs? Yes, funds under the Revenue Loss category generally may be used to meet the non-federal cost-share or matching requirements of other federal programs. CSLFRF funds may not be used as the nonfederal share for purposes of a state’s Medicaid and CHIP programs. CSLFRF funds in the other eligible use categories may not be used to meet the non-federal match or cost-share requirements of other federal programs, unless specifically provided for by statute.

American Rescue Plan Act of 2021: Coronavirus State & Local Fiscal Recovery Funds Final Rule — Spending Funds for General Government Purposes