The American Rescue Plan – Relief Funds for Local Governments

The Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) established under the American Rescue Plan will deliver $7.2 billion to the State of Michigan and local government units in Michigan to respond to the COVID-19 emergency and support the communities and populations hardest-hit by the crisis.

Funding Amounts

U.S. Congress has allocated Coronavirus State and Local Fiscal Recovery Fund to tens of thousands of eligible state, local, territorial, and tribal governments. In the State of Michigan, these amounts include:

State of Michigan – $2,833,294,345
Counties – $1,939,829,897
Metropolitan Cities – $1,822,870,482
Non-entitlement Units of Local Government $644,294,475

The U.S. Treasury will distribute funds to eligible state, territorial, metropolitan city, county, and tribal governments. Eligible local governments that are classified as non-entitlement units of local government should expect to receive this funding through the State of Michigan.

Non-entitlement Units

The Coronavirus Local Fiscal Recovery Fund will provide $644 million to support non-entitlement units of local government (NEUs) in the State of Michigan, local governments typically serving a population under 50,000. U.S. Treasury will make payments to the State of Michigan, which will distribute amounts to eligible NEUs in their jurisdiction in accordance with the guidelines established by the U.S. Treasury.

Tranching of Funds

Local governments will receive funds in two tranches, with 50% provided beginning in May 2021 and the balance delivered approximately 12 months later.

Use of Funds

The Coronavirus State and Local Fiscal Recovery Funds provide eligible state, local, territorial, and Tribal governments with a substantial infusion of resources to meet pandemic response needs and rebuild a stronger. More equitable economy as the country recovers. Recipients may use these funds to:

• Support public health expenditures, by, for example, funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and specific 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.
  • Lost revenue will be calculated at four points in time using the higher of: 1) the annual growth rate over the three full years prior to the pandemic or 2) the national average of 4.1 percent for each period.
  • Excluded revenues from the calculation.
    • Federal Funding – direct or passed through.
    • Revenue generated by utilities and insurance trust.
    • Proceeds from sale of debt and/or investments.
    • Refunds of other correcting transactions.
    • Agency and private purpose trust transactions.
• 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 stormwater infrastructure, and expand access to broadband internet.

Within these overall categories, recipients have broad flexibility to decide how best to use this funding to meet the needs of their communities.

Ineligible uses of CSLFRF

The interim final rule provides instances in which the CSLFRF funding would be considered ineligible use of funding:

• Deposits into a pension fund for the purpose of reducing an accrued, unfunded liability. However, if an employee’s wages are eligible uses of CSLFRF, governments may treat the employee’s benefits, including pension, as eligible uses of funding.
• State and territories may not use CSLFRF to either directly or indirectly offset a reduction in net tax revenue resulting from a change in law or regulation. Local governments are not subject to this offset limitation.
• CSLFRF may not be used as a source of an entity’s required matching contributions when other federal program prohibit the use of federal matching funds.
• Additional examples of ineligible use of funds provided by the interim final rule broken down into broad buckets:
  • Contributions to rainy day funds.
  • Payments on outstanding debt.
  • Fees or issuance costs of new debt.
  • Payments associated with settlements or judgments.

Interim Final Rule

Funding from the Coronavirus State and Local Fiscal Recovery Funds is subject to the requirements specified in the Interim Final Rule adopted by Treasury on May 10, 2021.

No action is required on the part of the municipality, the State of Michigan will pass the funds through to the qualifying communities. Contact us with any questions, maner@manercpa.com.