Update: On January 6, 2022, the U.S. Department of the Treasury issued the Final Rule, which governs the eligible uses of Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”) under the American Rescue Plan Act (“ARPA”). The Final Rule makes several key changes to the Interim Final Rule, including expanding the eligible uses of CSLFRF and easing the administrative burden for some program requirements. Please review the Final Rule to learn more about the updated CSLFRF program requirements. (Treasury has also published these helpful resources: overview of the Final Rule and a Compliance and Reporting Guidance (updated 11/15/21).) As always, consult your local attorney with questions.

Note that the information below has not been updated since the release of the Final Rule and some of it may no longer be accurate. Please visit our main category page to access more recent posts.

UPDATE October 1, 2021: US Treasury has extended the 1st reporting deadline for the Project and Expenditure Reports. See new reporting deadlines here.

As discussed in previous posts, Part 8, Subtitle M—Coronavirus State and Local Fiscal Recovery Funds of H.R. 1319 American Rescue Plan Act of 2021  (ARP) provides significant funding for NC counties and municipalities. (These funds are also referred to as ARPA Funds, Coronavirus State and Local Fiscal Recovery Funds, CSLFRF, CLFRF, or Fiscal Recovery Funds. I use these terms interchangeably in this post.) Many counties and municipalities have already received their first distribution either directly from the federal government or from the State, which comprises one-half of their total allocation. (The second half will be distributed next year.) All other eligible local governments are likely to receive their first distribution within the next month.

We are still awaiting final expenditure guidance from US Treasury for ARP funds. Local government officials are well-advised to wait until final guidance is issued, particularly because US Treasury may expand and refine the contours of allowable expenditures. (US Treasury closed comments in its Interim Final Rule on July 16, 2021. It likely will issue a Final Rule within the next month or two. In the meantime, US Treasury continues to update its FAQ document.) Local officials also may want to wait until the NC General Assembly enacts the state budget and/or enacts other legislation related to ARP. Among other things, the legislature may expand state law authority—allowing a local government to make broader use of its ARP funds. It also may establish or expand state law funding programs to enable a local government to better leverage its ARP expenditures. Local governments have until December 31, 2024, to obligate their ARP funds and until December 31, 2026, to expend them. This allows sufficient time for local officials to strategically plan how best to use their ARP funds before making final expenditure decisions.

As local officials deliberate on ARP expenditure options, it is important to consider compliance requirements. All local governments receiving ARP funds must fulfill federal compliance and reporting requirements, as well as state law budgeting, expenditure, contracting, accounting, reporting, and auditing requirements. This post focuses on the federal reporting requirements (not to be confused with the annual audit requirements associated with these funds). It identifies the three report types and specifies which local governments must submit each and when. It then details the specifics of the Interim Report, which is the first report due for counties and metropolitan cities only. Finally, it outlines the contours of the other two reports. The post reflects the latest reporting guidance from US Treasury, released on August 9, 2021.

ARP REPORTING REQUIREMENTS AND DEADLINES

As with all federal grants, a local government that receives ARP funds must submit a series of reports throughout the grant term to demonstrate compliance with expenditure and other process requirements. The federal reporting directives for ARP funds are found in Part 2 of the US Treasury State and Local Fiscal Recovery Funds Compliance and Reporting Guidance. (It is worth a careful read!) According to US Treasury, the guiding principles of the reporting requirements are accountability, transparency, and user-friendliness. They are also recovery focused. There are three report categories:

(1) Interim Report;

(2) Project and Expenditure Report; and

(3) Recovery Plan Performance Report.

Which local government must submit each of these reports, as well as the nature and timing of the reports, depends on the type and size of local government and amount of total ARP funding received. Most NC municipalities will only be responsible for the Project and Expenditure Report and most counties will only be responsible for the Interim Report and Project and Expenditure Report. US Treasury has published a detailed reporting guide—Treasury’s Portal for Recipient Reporting: State and Local Fiscal Recovery Funds—to assist local governments with the reporting process. (It is also worth a careful read!)

The following table summarizes the reporting scheme by recipient local government type and size and amount of total award. The total award amount includes all tranche distributions. The table is adapted from Table 2: Reporting requirements by recipient type in the US Treasury State and Local Fiscal Recovery Funds Compliance and Reporting Guidance (hereinafter Compliance and Reporting Guidance).

*Amounts are based on total ARP award, including all tranche distributions.

County Reporting Requirements. As the table illustrates, all 100 NC counties must complete the one-time Interim Report, due August 31, 2021. All counties also will complete the Project and Expenditure Report, beginning October 31, 2021, although some will submit it annually and others quarterly. A handful of counties (those over 250,000 population) must submit the yearly Recovery Plan Performance Report, with the first report due August 31, 2021.

Municipal Reporting Requirements. For municipalities, only those designated as metropolitan cities must complete the Interim Report. A metropolitan city is generally defined as a municipality within a metropolitan area which has a population of 50,000 or more. Like counties, metropolitan cities received their ARP funds directly from US Treasury. All municipalities, including nonentitlement units of local government or NEUs, will complete the Project and Expenditure Report, filing either quarterly or annually depending on population and amount of award. And a handful of metropolitan cities (those over 250,000 population) must submit the Recovery Plan Performance Report.

THE INTERIM REPORT

The Interim Report is the first report that will be due for counties and metropolitan cities. This is a one-time report that captures obligations and expenditures of ARP funds by expenditure category through July 31, 2021. Required data must be entered into the US Treasury’s State and Local Fiscal Recovery Fund (SLFRF) Portal by August 31, 2021, and reflects obligations and expenditures for ARP funds from the date of award through July 31, 2021.

Who Must Submit the Report

Only counties and metropolitan cities (in other words, the local governments that receive their distributions directly from US Treasury) must complete the Interim Report. NEUs, which comprise most NC municipalities and who receive their distributions from the State, will NOT submit this report. A local government that is required to submit the Interim Report must do so even if it has not expended or obligated any of its ARP funds by July 31, 2021. It will simply show $0 obligations and expenditures for the reporting period.

Interim Report NOT an Expenditure Requirement

Before turning to the specifics of the Interim Report, it is important to emphasize that the reporting requirement is not an expenditure requirement. A local government does not have to obligate or expend any of its ARP funds by August 31, 2021. The ARP allows a local government several years to make expenditure decisions. As stated above, a local government has until December 31, 2024, to obligate all of the ARP funds, and until December 31, 2026, to fully expend them. The Interim Report will merely reflect any amounts that were expended or obligated between the date of the award and July 31, 2021. If a county or metropolitan city did not expend or obligate any ARP funds as of July 31, 2021, then it will simply enter $0 in the required fields.

Where to Submit Interim Report

To complete the Interim Report, a county or metropolitan city must enter certain data into its State and Local Fiscal Recovery Funds (SLRFR) US Treasury portal. US Treasury provides directions on how to access the portal and the report form here. (Detailed instructions, including screen shots, begin on page 3. Note that Sections d) and e), pages 12-22, do not apply to NC local governments.)

Who May Submit Interim Report

Only the designated Authorized Representative for Reporting for the local government may submit and certify official reports on behalf of the local government. The Authorized Representative for Reporting also is responsible for communications with US Treasury on extension requests and amendments to previous reports (if applicable). The Account Administrator for the ARP award must designate the Authorized Representative for Reporting (and the Point of Contact for Reporting, who is the primary contact for receiving official Treasury notifications about reporting). The same person may serve in all three of these roles. According to US Treasury, each local government should have received an email with instructions on how to designate individuals in these roles (or change designations). If you did not receive the email, contact treasury at SLRFP@treasury.gov. Each designated individual must register with ID.me to gain access to the portal. You may also contact SLRFP@treasury.gov for info on procedures to register with ID.me.

When is Interim Report Due

The Interim Report is a one-time report, due by August 31, 2021. There is one exception to this deadline. According to FAQ 1.3 in the Treasury’s Portal for Recipient Reporting: State and Local Fiscal Recovery Funds, if a county or metropolitan city did not receive its first tranche funding as of July 15, 2021, the Interim Report is due within 60 days of receiving the first distribution.

What to Submit in Interim Report

The Interim Report captures two things:

1. The total obligations and expenditures of ARP funds by expenditure category, from date of award through July 31, 2021, and
2. The details of the revenue replacement formula, calculated as of December 31, 2020, and a description of any general government services funded with the revenue replacement (aka lost revenue) ARP funds.

 Total Expenditures and Obligations by Expenditure Category

The first reporting requirement is of total expenditures and obligations of ARP funds by expenditure category, from date of award through July 31, 2021. (Note that a local government may use ARP funds to reimburse itself for ARP-eligible expenditures made between March 3, 2021 and the date the unit received its first tranche distribution. If these reimbursement expenditures occurred before July 31, 2021, they should be reflected in the report.) The applicable expenditure categories (EC) are listed in Appendix 1 of the Compliance and Reporting Guidance. An expenditure is defined as an amount that has been incurred as a liability of the local government. That means that the goods have been delivered or services performed, including pursuant to a subaward agreement, and payment is due (or has been disbursed). An obligation is defined as an amount that the local government has legally committed by contracting for goods or services, subaward agreements, or other transactions that obligate payment of ARP funds. In other words, an obligation is the amount that has been legally encumbered for pre-audit purposes. The total amounts expended, and total amounts obligated for each EC will be reported. Amounts will not be broken down by project or program. This is a summary report only.

As an example, one of the EC’s is Category 2, Negative Economic Impacts. Assume that within this EC, the local government has obligated $325,000 and expended $25,000 of ARP funds as of July 31, 2021, for a utility assistance program. It would report it as follows in the US Treasury Portal form.

*Only the amounts actually expended or obligated as of July 31, 2021, are reported. Even if a county or metropolitan municipality intends to make other expenditures within this EC, it should not be reflected in the Interim Report unless the monies were expended or obligated as of July 31, 2021. If a local government later decides to reimburse itself for an ARP-eligible expenditure incurred between March 3, 2021 and July 31, 2021, it will reflect that its Project and Expenditure Report (discussed below). Note also that for state law purposes, this total amount was required to be budgeted in either a special revenue fund in the annual budget ordinance or in a grant project or capital project ordinance before any of the funds could be obligated/expended.

Revenue Replacement (Lost Revenue) Calculation

Counties and metropolitan municipalities also will be required to provide information about their revenue replacement calculation and expenditures, if any, as of July 31, 2021. The Interim Report will capture “key inputs into the revenue replacement formula in the Interim Final Rule and estimated revenue loss due to the Covid-19 public health emergency calculated using the formula in the Interim Final Rule as of December 31, 2020.” Compliance and Reporting Guidance, page 13.

                        What is Revenue Replacement

As discussed in this post, one of the ARP-eligible ECs is Revenue Replacement. The ARP allows a local government to use ARP monies to fund (most) government services, to the extent that the local government experiences a reduction in general revenue during the pandemic. This category provides the broadest general expenditure authority for local governments, but it is limited to only a certain portion of a unit’s ARP funds, as determined by a “lost revenue” formula.

The lost revenue formula measures a local government’s reduction in general revenue, as defined by the Interim Final Rule, relative to the revenue collected in the most recent full fiscal year prior to the pandemic. It provides an inflationary formula to approximate what the local government’s expected general revenue would have been had the pandemic not occurred. There are four parts to calculating lost revenue – (1) determining the base year general revenue; (2) determining actual general revenue at designated points in time; (3) applying an inflationary factor to the base year general revenue at each point in time; (4) comparing actual general revenue to the inflated base general revenue to determine lost revenue. This calculation will be performed four times—for December 31, 2020, December 31, 2021, December 31, 2022, and December 31, 2023. See Interim Final Rule pages 54-59. The resulting lost revenue, if any, may be expended for most general government purposes, as detailed in the post linked above.

                        Interim Report on Revenue Replacement

According to US Treasury, the Interim Report will require the following information for the first lost revenue calculation (for December 31, 2020):

• Base year general revenue (e.g., revenue in the last full fiscal year prior to the public health emergency)
• Fiscal year end date
• Growth adjustment used (either 4.1 percent or average annual general revenue growth over 3 years prior to pandemic)
• Actual general revenue as of the twelve months ended December 31, 2020
• Estimated revenue loss due to the Covid-19 public health emergency as of December 31, 2020
• An explanation of how revenue replacement funds were allocated to government services

According to local officials who have already logged into the portal, you will be required to complete the revenue replacement calculation even if you have not obligated or expended any of these lost revenue funds. Do the calculation based on your best interpretation of current US Treasury guidance. (More details in this post.) You will be able to update your calculation based on new US Treasury guidance with the next report. (And we continue to encourage local units to wait to expend these funds until the Final Rule is published by US Treasury.)

REMAINING REPORTS

There are two other reports that may be applicable to ARP funds recipients–the Project and Expenditure Report and the Recovery Plan Performance Report.

Project and Expenditure Report

ALL local governments that receive ARP funds will be required to submit the Project Expenditure Report. The initial report deadline is October 31, 2021. This first report will cover from date of award through September 30, 2021. Counties and metropolitan cities with populations over 250,000, and counties and metropolitan cities with populations under 250,000 but who will receive greater than $5 million in total CLFRF funding must submit the report quarterly thereafter until the end of the award period. The quarterly report schedule is on pages 15-16 of the Compliance and Reporting Guidance. All other counties and municipalities must submit the report yearly thereafter, according to the schedule set out on page 16 of the Compliance and Reporting Guidance.

This will be a fairly detailed report of expenditures at the project level. For each “project” (broadly defined to include only closely related activities directed toward a common purpose) a local government will include a brief project description, project EC, current and cumulative obligations and expenditures, project status, and project demographic distribution, as well as information on certain subawards and civil rights compliance. (Recall that ECs are listed in Appendix 1 of the Compliance and Reporting Guidance.) It will require more detailed information for obligations and expenditures in certain ECs—premium pay, revenue replacement, and necessary water, sewer, and broadband infrastructure projects. Finally, NEUs will have to provide copies of their signed grant award, signed assurances of compliance with Title VI of the Civil Rights Act of 1964, and actual budget documents validating the top-line budget total provided to the State as part of the request for funding. I will discuss the specifics of each of these in a later blog post, after we receive further guidance from US Treasury.

In the meantime, NEUs who have not previously registered with SAM.gov must do so before the first reporting deadline on October 31, 2021. And all local governments should start collecting and relating data on ARP projects according to the expected report format. Figure 7 on page 7 of the Treasury’s Portal for Recipient Reporting: State and Local Fiscal Recovery Funds provides a visual depiction of the relationship between an EC and a project. It serves as a guide to compiling information in a useful way to meet the reporting requirements. A couple of things of note. Each project will be associated with only one EC. And any administrative costs for a specific project should be tracked and will be reported under the appropriate expenditure category for that project. Only general administrative costs that are not associated with any particular project will be reported under the Administrative Expenses EC.

Recovery Plan Performance Report

Only a handful of NC counties and metropolitan cities are required to submit the Recovery Plan Performance Report – specifically those with populations over 250,000. The first of these reports is due by August 31, 2021. The report will then be submitted yearly thereafter, based on the schedule on page 23 of the Compliance and Reporting Guidance. This report will be uploaded to the reporting portal and also published on the local government’s website. The Treasury’s Portal for Recipient Reporting: State and Local Fiscal Recovery Funds provides instructions, beginning on page 24. This is a very detailed report on the local government’s planned projects and how it will ensure “program outcomes are achieved in an effective, efficient, and equitable manner” and includes documentation of the use of evidenced-based interventions or other rigorous program evaluations. US Treasury has provided a template for this report, available here. (Note that for the initial report on August 31, 2021, Treasury is not requiring a local government upload a project inventory file or input other programmatic data.)

As with the Interim Report, the Recovery Plan Peformance Report is not an expenditure requirement. According to FAQ 1.8 of the Treasury’s Portal for Recipient Reporting: State and Local Fiscal Recovery Funds, “[f]unding does not need to be committed or dedicated by the time the initial Recovery Plan is submitted. The Recovery Plan should include planned uses of funds and projects to the extent known at the time the Recovery Plan is submitted. Updates can be provided in subsequent project and expenditure reports.”

REPORTS NOT A SUBSTITUTE FOR AUDIT AND OTHER COMPLIANCE REQUIREMENTS

Although the three reports discussed above are mandated by US Treasury, they do not represent the full compliance obligations of a local government that accepts ARP funds. ARP funds are subject to most provisions of the federal Uniform Guidance, which prescribes contracting, auditing, and other process requirements. The Compliance and Reporting Guidance provides a summary of these mandates. And, under NC law, these funds are subject to all of the requirements of the Local Government Budget and Fiscal Control Act, including provisions related to budgeting, cash management, expenditure control, and the annual audit.