In the wake of Hurricane Helene, which has brought historic damage to many western North Carolina communities, local governments will be looking for available funding to help repair, restore, and rebuild public infrastructure and to provide direct assistance to their affected citizens. One immediate source of funding available for some counties and municipalities is their unobligated American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds (ARPA/CSLFRF). There are still many North Carolina local governments who have not fully obligated their funds and who are running up against the December 31, 2024 deadline. And with 2023 changes to Treasury’s rules implementing the ARPA/CSLFRF grant, these funds can be spent to respond to a natural disaster. The ARPA/CSLFRF funds may be used to cover many disaster-related expenditures that will not be reimbursed by the Federal Emergency Management Agency (FEMA) or other external sources. A local government may substitute these disaster-response projects for other projects it intended to use the funding for but are now infeasible or impractical to carry out by the deadline. The post walks through the allowable disaster-related expenditures and compliance requirements.

As detailed in previous posts, the ARPA/CSLFRF grant stemmed from the third federal stimulus package arising from the COVID-19 pandemic. It was enacted in March 2021 and provided funding to the State and every county and municipality. Local governments have until December 31, 2024, to fully obligate the grant funds and until December 31, 2026, to fully expend them. Originally, the monies could be expended for projects that fall into four general categories, consistent with state law authority. In August 2023, US Treasury, which administers the grant, added a fifth category which, among other things, authorizes certain disaster response and mitigation projects. That amendment is referred to by Treasury as the 2023 IFR.

Under this fifth category, a local government may use its ARP/CSLFRF funds to provide emergency relief from qualifying natural disasters or the negative economic effects of natural disasters.

(Note that a local government also may use its Revenue Replacement category funds to cover any disaster-response expenditures authorized by state law, except for those related to debt financing. But because most local governments have maxed out their Revenue Replacement expenditures, this post is focused on expenditures in the Disaster Response/Mitigation category.) 

What is a Qualifying Natural Disaster?

A natural disaster is defined as a “hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mudslide, snowstorm, drought, or fire, in each case attributable to natural causes, that causes or may cause substantial damage, injury, or imminent threat to civilian property or persons.” A natural disaster may also include another type of natural catastrophe, attributable to natural causes, that causes or may cause substantial damage, injury, or imminent threat to civilian property or persons. (Civilian property is defined to include local government property.)

To be a qualifying natural disaster, there must be an emergency declaration or designation in an area that includes all or part of the local government’s territory. An emergency declaration may be made by the President, pursuant to the federal Disaster Relief and Emergency Assistance Act (Stafford Act); the Governor, pursuant to the NC State Emergency Management Act; or by the chief executive (likely manager or mayor) of the local government, with proper documentation of the nature of the natural disaster. (In the case of Hurricane Helene, there has been both federal and state emergency declarations. The federal declaration includes the following counties: Alexander, Alleghany, Ashe, Avery, Buncombe, Burke, Caldwell, Catawba, Clay, Cleveland, Gaston, Haywood, Henderson, Jackson, Lincoln, Macon, Madison, McDowell, Mitchell, Polk, Rutherford, Transylvania, Watauga, Wilkes, and Yancey Counties.)

What is emergency relief?

Emergency relief includes assistance that is needed to save lives and to protect property and public health and safety, or to lessen the impact of the catastrophe. The assistance must be related and reasonably proportional to the physical or negative economic impacts of the natural disaster that has occurred. See 2023 IFR; see also SLFRF FAQ 4.1; 15.1-15.14.

Treasury has identified a non-exhaustive list of eligible emergency relief measures. These can be considered safe harbor projects, assuming they are related and reasonably proportional to addressing the harms from the natural disaster. All projects also must be authorized by state law. And, as detailed below, ARPA/CSLFRF funds may only be used for costs that the local government will not be reimbursed for from FEMA or other external funding sources.

Temporary housing. Costs may include rental assistance, reimbursement for hotel costs, temporary housing units, and temporary shelters.

Food Assistance. Programs may include supplemental benefits for individuals participating in state unemployment insurance programs or the Department of Labors’ Disaster Unemployment Assistance (DUA) program at the time of the disaster or following the disaster. There is a cap of $400 a week for the duration of the emergency relief.

Emergency Protective Measures. Costs may include transportation and pre-positioning equipment and resources; flood fighting; firefighting; supplies and commodities; medical care and transport; evacuation and sheltering; demolition of structures; search and rescue efforts to locate survivors, household pets and service animals; use or lease of temporary generators for facilities that provide essential community services; public communications; construction of emergency berms or temporary levees; emergency repairs to prevent further damages; buttressing, shoring or bracing facilities to stabilize or prevent collapse, emergency slope stabilization, mold remediation, extracting water and clearing mud, silt, or other accumulated debris; taking actions to save the lives of animals; storage and interment of unidentified human remains; and mass mortuary services.

Debris removal. Costs may include the clearance, removal, and disposal of vegetable debris (such as tree limbs, branches, stumps, or tress), construction and demolition debris, sand, mud, silt, gravel, rocks, boulders, white goods, and vehicle and vessel wreckage.

Public infrastructure repair. Costs may include including roads, bridges, and utilities damaged by a natural disaster, restoring the infrastructure to its pre-disaster size, capacity, and function.

Increased operational costs. Costs may include payroll costs and costs for government facilities and government services used before, during or after a natural disaster.

Cash assistance for uninsured or underinsured disaster-caused expenses. Costs may include repair or replacement of personal property and vehicles, or funds for moving and storage, medical, dental, childcare, funeral expenses, behavioral health services, and other miscellaneous items.

Cash assistance for low-income households that have been impacted by a natural disaster. Low-income households are ones with (i) income at or below 185 percent of the Federal Poverty Guidelines for the size of the household based on the most recently published poverty guidelines by the Department of Health and Human Services or (ii) income at or below 40 percent of area median income for the county and size of household based on the most recently published data by the Department of Housing and Urban Development.

Home repairs for primary residences not covered by insurance that have become uninhabitable because of natural disaster to make the residence habitable again.

Other costs may be allowed if they meet the criteria of being related and reasonably proportional to the physical or negative economic impacts of the natural disaster that has occurred. See Coronavirus State & Local Fiscal Recovery Funds: Overview of the Interim Final Rule (August 2023).

In executing a disaster-response project, a local government must follow all of the compliance requirements that attach to the ARPA/CSLFRF funds, including those related to eligible use, allowable cost, records retention, conflicts of interest, and civil rights compliance, and, if applicable to the project, procurement, property management, program income, and sub awards.

State Law Authority

A local government also must have state law authority to undertake the specific projects. Of course, there is broad statutory authority for local government expenditures made on public infrastructure or to support local government staff and operations. But what about support for private citizens and projects on private property? Generally, that authority is more limited. Local governments may undertake public assistance programs for persons of low or moderate income. G.S. 160D-1311. And, similarly, there is authority for assistance programs for senior citizens. G.S. 160A-497. In normal times, with few exceptions, there is not general statutory authority to provide direct assistance payments to most other citizens or to make expenditures on private property.

However, during a declared emergency the state emergency management law, specifically G.S. 166A-19.15(f), allows a county and municipality:

(1) To appropriate and expend funds, make contracts, obtain and distribute equipment, materials, and supplies for emergency management purposes and to provide for the health and safety of persons and property, including emergency assistance, consistent with [the State Emergency Management Act].

(1a) To award contracts for the repair, rehabilitation, or construction of private residential structures funded by State or federal funds provided to the political subdivision as a result of a disaster declared by the Governor under G.S. 166A‐19.21 covering the political subdivision. (Local governments may contract with contractors prequalified by the NC Division of Emergency Management in accordance with G.S. 143-135.8 for that disaster. If it selects a prequalified contractor, the local government is not required to follow the procedures for prequalifying contractors set forth in G.S. 143-135.8. But other contracting requirements in Article 8 of Chapter 143 continue to apply.)

These two provisions provide broader authority for a local government to expend public funds to directly assist its citizens and benefit private property.

No Duplication of Benefits (aka No Double Dipping)

A local government generally may not use federal financial assistance to cover a cost that it is covered by another federal award, by insurance, or from another source. See 2 CFR 200.1 (improper payment) and 2 CFR 200.403. In other words, a local government may not use ARPA/CSLFRF funds to cover cost that will be covered (or reimbursed) by another external source of funding. (Subrecipients are bound by this same prohibition.)

Additionally, under the federal Stafford Act a local government may not provide financial assistance to a person, business concern, or other entity with respect to disaster losses for which the beneficiary will receive financial assistance under any other program or from insurance or any other source. A local government may provide assistance with respect to disaster losses to a an entity entitled to receive assistance for those losses from another source, if the entity has not received the other benefits by the time of application for ARP/CSLFRF funds and the person, business concern, or other entity agrees to repay any duplicative assistance to the local government. The local government may use ARPA/CSLFRF funds to provide assistance for any portion of the disaster losses not covered by other benefits.

FEMA provides guidance which describes a “delivery sequence,” or order in which disaster relief agencies and organizations provide assistance for disaster losses. 44 CFR 206.191. Treasury is requiring local governments to use ARPA/CSLFRF funds as last in the delivery sequence, unless the local government, in consultation with the appropriate FEMA Regional Administrator or state disaster-assistance administrator, determines that another sequence is appropriate. A local government must exhaust its other external funding options before turning to ARPA/CSLRF.

This makes things a little tricky in strategically mapping out what expenses to use ARPA/CSLFRF for in this immediate aftermath of the disaster, before it is clear what will be covered by FEMA or other external sources. But because a local government already has its ARPA/CSLFRF cash, there may be immediate expenditure needs that it should prioritize for this funding. And then the local government will not seek reimbursement from another source for those costs.

What about using ARPA/CSLFRF funds as a non-federal match on other federal assistance programs? Treasury has authorized local governments to use Revenue Replacement category funds as a non-federal match, but not funds in other categories. Expenditures in the Disaster Response/Mitigation category cannot be used as the non-federal match for other federal assistance programs.

Changing Existing ARPA/CSLFRF Projects to Disaster-Response Projects

If a local government has already budgeted its ARPA/CSLFRF funds for a different project and now wants to switch to a disaster-response project, the board can simply amend the grant project ordinance to make the change. If a local government has already executed one or more contracts for the other project (obligated the funds), it will have to consult with its attorney about its options to terminate that agreement(s). It may be able to (or it may be forced to due to the circumstances) abandon the project or decrease its scope and then use the remaining funds for a disaster-response project. And there are no concerns with reports to Treasury. A local government can reflect any changes it makes in its next Project and Expenditure report.