With the enactment of the Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund (Coronavirus Recovery Fund) established under the American Rescue Plan Act (ARPA) on May 10, 2021, the U.S. Department of the Treasury has made available $350 Billion to state and local governments to cover the costs incurred as a result of recovery efforts related to the COVID-19 pandemic. The initial dispersal of these funds will begin taking place in July 2021, with a second dispersal of an equal amount taking place in mid-2022. This follows the distribution of $150 Billion to state and local governments through the Coronavirus Relief Fund (CRF) as established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which took place throughout 2020 and early 2021.
Although these two funding streams are similar in their aim of enabling state, territorial, tribal, county, metropolitan city and other local governments to assist their communities as they recover from the pandemic, the types of eligible costs and applicability of the two funds are quite different. It is important for civic leaders to understand the difference between the two funding streams, to ensure that their communities are able to make best use of the grant allocations.
CARES Act funding is eligible to be utilized for necessary expenditures incurred due to the public health emergency. The eligible expenditures include those costs incurred:
- In direct response to the emergency, such as by addressing medical or public health needs
- To respond to second-order effects of the emergency, such as by providing economic support to those suffering from employment or business interruptions due to COVID-19-related business closures.
ARP Act funding is eligible to be utilized to meet pandemic response needs and rebuild a stronger, and more equitable economy as the country recovers. The eligible expenditures include those costs incurred:
- To provide support for households, small businesses, impacted industries, essential workers, and the communities hardest hit by the crisis
- To make necessary investments in water, sewer, and broadband infrastructure
| CARES Act | ARPA |
| ·       Medical expenses such as COVID-19-related expenses of public hospitals, clinics, and similar facilities. Expenses of establishing temporary public medical facilities and other measures to increase COVID-19 treatment capacity, including related construction costs.
·       Public health expenses such as expenses for communication and enforcement of public health orders related to COVID-19 or the acquisition and distribution of medical and protective supplies, including sanitizing products and personal protective equipment. ·       Payroll expenses for public safety, public health, health care, human services, and similar employees. ·       Expenses of actions to facilitate compliance with COVID-19-related public health measures, such as for food delivery to residents to facilitate distance learning, and improve telework capabilities for public employees. ·       Expenses associated with the provision of economic support in connection with the COVID-19 public health emergency, such as grants to small businesses to reimburse the costs of business interruption, expenditures related to a State, territorial, local, or Tribal government payroll support, and unemployment insurance costs related to the COVID-19 public health emergency.
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·       Support public health expenditures, by, for example, funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and certain public health and safety staff.
·       Address negative economic impacts caused by the public health emergency, including economic harms to workers, households, small businesses, impacted industries, and the public sector. ·       Replace lost public sector revenue, using this funding to provide government services to the extent of the reduction in revenue experienced due to the pandemic. ·       Provide premium pay for essential workers, offering additional support to those who have and will bear the greatest health risks because of their service in critical infrastructure sectors. ·       Invest in water, sewer, and broadband infrastructure, making necessary investments to improve access to clean drinking water, support vital wastewater and storm-water infrastructure, and to expand access to broadband internet.
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It should be noted that those ongoing expenditures claimed under the CARES Act, which are now also eligible under ARPA can continue to be considered for reimbursement and funding. However, it should be noted that there are three major exceptions to this rule: ARPA places additional restrictions on payroll costs for public health and safety employees, does not allow expenses related to issuing tax-anticipation notes, and are not eligible to be utilized for non-federal matching requirements such as FEMA Disaster Assistance or Medicaid.
In addition to the differentiation in expenditure eligibility, there are some variations in the cost accounting and performance period between CARES and ARPA funds.
| CARES Act | ARPA |
| Costs must not have been accounted for in the 2020 budget. Either the cost:
·       Cannot lawfully be funded using a line item, allotment, or allocation within that budget; or ·       Is for a substantially different use from any expected use of funds in such a line item, allotment, or allocation. Costs must be incurred between March 1, 2020, and December 31, 2021 ·       Performance or delivery of incurred goods or services must take place during the covered period. ·       Goods delivered in the covered period need not be used during the covered period. Recipients must submit Interim and Quarterly Reports ·       Interim Reports covered spending from March 1 through June 30, 2020. ·       Quarterly Reports will include financial data, information on contracts and subawards regarding the utilization of funds.
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Grant funds must not be utilized for the following purposes:
·       Recipients are not allowed to make an extraordinary deposit to a pension fund. ·       States and territories are not allowed to use funding to reduce net tax revenue due to a change in law from March 3, 2021, through the last day of the fiscal year in which the funds provided have been spent. Costs must be incurred between January 27, 2020 and December 31, 2024 ·       Funds can be used retroactively to cover the cost of premium pay for essential workers. Recipients must submit Interim, Quarterly, and Recovery Plan Performance Reports ·       Interim Reports will cover spending from the date the county receives Recovery Funds to July 31, 2021. ·       Quarterly Reports will include financial data, information on contracts and subawards regarding the utilization of funds. ·       Recovery Plan Performance Reports will need submit an annually based upon the Key Performance Indicators defined in the recipients’ developed Recovery Plan.
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To comply with federal requirements, recipients of CARES and ARP funds may need to change their internal control structure, which can be a complex endeavor. From adhering to Uniform Guidance to following the “Internal Control Integrated Framework†issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), creating, implementing, and documenting an internal control system for grants requires a considerable amount time and manpower.
We welcome your questions. Please contact REDW Principal Chris Tyhurst for professional guidance.
This article originally appeared in BDO USA, LLP’s 2021 Advisory newsletter. Copyright © 2021 BDO USA, LLP. All rights reserved. www.bdo.com
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