What is the Standard Allowance?

The Final Rule implementing the ARP/CSLFRF authorizes 4 main expenditure categories:

1. Addressing the COVID-19 public health emergency and its negative economic impacts: authorizing projects that address the ongoing pandemic or its negative economic impacts on certain households, groups, areas, or the local government itself
2. Premium pay: authorizing additional pay for local government employees (and employees in certain other sectors) for work performed in person during the pandemic and targeted to low or moderate income employees or those who experience unique financial or health risks from working during the pandemic
3. Necessary water, wastewater, stormwater, and broadband infrastructure: authoring investments in certain water, wastewater, stormwater, and broadband infrastructure projects
4. Revenue replacement: authorizing expenditures for the provision of government services

The Standard Allowance relates to the Revenue Replacement category. With the Interim Final Rule (which is no longer in effect), a local government had to use a detailed formula to calculate whether it experienced or will experience lost revenue growth over a 4-year period from 2020 through 2023. If the formula revealed lost revenue growth in any year, the local government could expend up to that amount in the Revenue Replacement category. Based on the formula most NC local governments did not experience lost revenue growth and are not projected to experience it for the remainder of the calculation period. Again under the Interim Final Rule, that meant that most NC local governments could not expend any of their ARP/CSLFRF funds as Revenue Replacement. Luckily, the Final Rule (effective now) added another option—the Standard Allowance. The Standard Allowance allows a local government to expend up to their full allotment of ARP/CSLFRF funds (up to a maximum of $10 million) in the Revenue Replacement category WITHOUT having to demonstrate any actual lost revenue growth. All local governments receiving from $1 through $10 million in ARP/CSLFRF funds should elect the Standard Allowance. Local governments receiving over $10 million in total ARP/CSLFRF funds may elect either the Standard Allowance or the (now modified) Formula Approach, if the formula approach is expected to reveal more than $10 million in lost revenue growth.

Why would a local government want to spend some or all of its ARP/CSLFRF funds in the Revenue Replacement category? First, expending ARP/CSLFRF in the Revenue Replacement category allows for a much broader array of potential expenditures. A local government may expend ARP/CSLFRF funds in this category for the provision of government services. This likely includes anything that a local government has state law authority to spend money on, including general fund and enterprise fund expenditures, capital and operating expenditures, and even administrative expenditures, such as employee salaries/benefits. US Treasury did not define “government services” but has provided non-exclusive lists of examples that illustrate how broad this category is:

From the US Treasury Final Rule Supplement

Government services include, but are not limited to, “maintenance or pay-go funded 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.”

From the US Treasury Final Rule Overview

“Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise. Here are some common examples, although this list is not exhaustive: Construction of schools and hospitals; Road building and maintenance, and other infrastructure; Health services; General government administration, staff, and administrative facilities; Environmental remediation; [and] Provision of police, fire, and other public safety services (including purchase of fire trucks and police vehicles).”

The Final Rule also allows Revenue Replacement funds to be used as the non-federal match in other federal programs (assuming it is allowed by the other federal programs). Expending ARP/CSLFRF in the Revenue Replacement category thus affords a local government the most flexibility to make the best possible investment with these one-time funds for its community. Second, US Treasury has significantly reduced the reporting and compliance burden on Revenue Replacement expenditures relative to the other categories.

Does electing the Standard Allowance force the local government to make specific expenditures? No. Electing the standard allowance simply allows a local government to spend up to its full allocation of ARP/CSLFRF (up to a maximum of $10 million) on the provision of government services. It does not mandate specific expenditures and it does not prevent a local government from expending some or all of its ARP/CSLFRF funds in one or more of the other categories.

Does electing the Standard Allowance automatically give every local government $10 million in ARP/CSLFRF funds? Unfortunately no. Electing the Standard Allowance does not change a local government’s total allocation of ARP/CSLFRF funds. It allows a local government to spend up to its entire allotment (up to a maximum of $10 million) in the Revenue Replacement category. The $10 million cap only applies to local governments whose total allocation exceeds $10 million.

If a local government elects the Standard Allowance does it have to spend all of its ARP/CSLFRF (up to the $10 million maximum) 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 (up to its total allocation or $10 million, whichever is lower). It does not require a local government to spend all, or even any, of its ARP/CSLFRF funds in the Revenue Replacement category, although as detailed above there are advantages to a local government spending as much as possible as Revenue Replacement because of its expenditure flexibility and more streamlined reporting.

If a local government identified a project in another category, may it now spend ARP/CSLFRF funds on the same project through the Revenue Replacement category? Yes. Because the expenditure authority in the Revenue Replacement category is so broad (the provision of government services), it encompasses all of the allowable expenditures in the other categories.

When must a local government elect the Standard Allowance (or Formula Approach) for Revenue Replacement? US Treasury initially required that a local government elect either the Standard Allowance or the Formula Approach for Revenue Replacement in the April 30, 2022 Project and Expenditure Report. But Treasury has subsequently indicated that it will allow a local government to make this election at least through the April 30, 2023 report. 

Does a local government have to know how it will expend all of its ARP/CSLFRF funds to elect the Standard Allowance? No. Electing the Standard Allowance allows the local government to spend up to its full ARP/CSLFRF (up to a maximum of $10 million) in the Revenue Replacement category. A local government does not have to know how it will expend its ARP/CSLFRF funds before electing the Standard Allowance.

Does a local government need to adopt a budget for its ARP/CSLFRF funds to elect the Standard Allowance? No. A local government must adopt a budget (ideally a grant project ordinance) before obligating or expending any of its ARP/CSLFRF funds, but it does not have to adopt a budget or make any expenditure decisions before electing the Standard Allowance (or Formula Approach).

Does a local government’s governing board need to vote to approve the election of the Standard Allowance (or Formula Approach)? The law does not require a board vote on this decision, however, a local government should follow its board’s general directives or practices for these types of decisions. Some boards are more involved in the day-to-day operations of the government than others.

What compliance requirements apply to Standard Allowance Revenue Replacement expenditures? As detailed here, in July 2022, US Treasury significantly reduced the compliance requirements for Revenue Replacement expenditures.