Author: Matt Hanson, CGMS, Associate Managing Director, Witt O’Brien’s
The $10 million standard allowance, introduced in the Treasury’s January 2022 Final Rule, was not a blank check. You are not alone if you thought it was. The standard allowance provided local governments with certainty over how much money would be available to address COVID-19-related revenue loss, as well as freeing up funding from an allowability perspective to address other types of infrastructure and critical projects. However, your jurisdiction must be cognizant of the restrictions and compliance considerations associated with the use of these funds.
Prior to the Final Rule, local jurisdictions generally did not meet the criteria to demonstrate revenue loss and thus were uncertain whether their calculations were correct and would hold up over time if/when audited.
The Final Rule introduced the standard allowance for revenue loss “of up to $10 million to spend on government services through the period of performance”(See CSLFRF FAQ pp. 21), which is “available to all recipients and offers a simple, convenient way to determine revenue loss, instead of using the full formula specified in the Final Rule.”(See CSLFRF FAQ pp. 21)
Generally, revenue loss funding must be:
- Used for a programmatic purpose, for the provision of government services
- Accounted for appropriately
- Applied the following relevant sections of both the Treasury’s Guidance and Federal Uniform Guidance
The Treasury’s FAQs released on July 27th, 2022—specifically 13.14, 13.15, and 13.16—further clarified allowability with FAQ 13.15 solidifying Revenue loss funding still cannot be used for the following:
- Offset a reduction in net tax revenue – applicable to states and territories
- Make a deposit into a pension fund – applicable to all recipients except Tribes
- Service debt or replenish financial reserves (e.g., “rainy day funds”) – applicable to all recipients
- Satisfy settlements and judgments – applicable to all recipients
- Fund programs, services, or capital expenditures that include a term or condition that undermines efforts to stop the spread of COVID-19 – applicable to all recipients (See CSLFRF FAQ pp. 21)
Additional Uniform Guidance subparts still apply (See Treasury’s Final Rule FAQs available at SLFRF-Final-Rule-FAQ.pdf (treasury.gov), pp. 54-55 [July 27, 2022]).
Your jurisdiction should enjoy the financial certainty of the standard allowance and use the programmatic flexibility to identify and address key projects and initiatives in your community. Take advantage of the reduced administrative burden of reporting under the revenue loss expenditure category but be aware of these potential compliance pitfalls.
If it does not jeopardize your internal control environment, manage these funds to the lower compliance threshold allowed by the Treasury—but DO NOT forget these are still federal funds, and as the direct recipient, you are responsible for compliance and oversight. If you have been told this funding can simply be deposited into your general fund, or you are free to do whatever you want with the money, immediately stop what you are doing, re-read the Treasury Guidance, and reach out for assistance before your jurisdiction faces a situation of serious non-compliance.
About Matt Hanson
Matthew brings more than 25 years of experience in government program/grant management, finance, and agency operations at the federal, state, and local levels. He is an industry thought leader focusing on the benefits of centralized approaches to grants management and the use of technology as resource multipliers leveraging his experience from the U.S. Department of Justice along with the State of Arizona, Matt has seen first-hand the efficiencies created through centralizing grants management services. As a result of his experiences during the American Recovery and Reinvestment Act of 2009, Matt leads the establishment of one of the nation's first statewide grants management offices along with the deployment of a statewide enterprise grants management solution.