Bonds

Treasury final ruling expands spending on water, sewage, broadband

The Department of the Treasury’s final ruling on its State and Local Coronavirus Fiscal Recovery Fund provides issuers with the guidance they had been seeking for months, giving them a better path to spending the money in ways to benefit states and localitirs.

The ruling, released last week, expands the list of water, sewer and infrastructure projects outside of the defined Environmental Protection Agency programs if deemed “necessary,” in addition to allowing counties up to $10 million for general public services.

“Treasury’s final rule clarifies how this historic legislation will help us strengthen our communities by investing in distressed small businesses, public health and safety, human services, especially for those suffering from domestic violence, mental illnesses and substance use disorders, and much-needed infrastructure, including broadband,” said National Association of Counties Executive Director Matthew Chase.

The final rule notes that projects that fall under the Environmental Protection Agency’s Clean Water State Revolving Fund and Drinking Water State Revolving Fund are eligible and the Treasury encourages recipients to review the EPA handbook for the full list of eligibilities. But the final ruling goes beyond these programs so that recipients can make necessary investments.

Andrew Harrer/Bloomberg

“With broadened eligibility under the final rule, SLFRF funds may be used to fund additional types of projects–such as additional stormwater infrastructure, residential wells, lead remediation, and certain rehabilitation of dams and reservoirs–beyond the CWSRF and DWSRF, if they are found to be ‘necessary’ according to the definition provided in the final rule and outlined below,” the regulation said.

A project is deemed necessary if it is responsive to an identified need to achieve or maintain an adequate minimum level of service, which may include a reasonable projection of increased need, whether due to population growth or otherwise. It can also be deemed necessary if it is a cost-effective means for meeting that need, taking into account available alternatives in addition to investments in infrastructure that supply drinking water in order to meet projected population growth.

“DWSRF and CWSRF-eligible projects are generally presumed to be necessary investments,” the regulation said. “Additional eligible projects generally must be responsive to an identified need to achieve or maintain an adequate minimum level of service.”

Examples of additional projects now eligible under the final rule include culvert repair, resizing and removal, replacement of storm sewers and additional types of stormwater infrastructure, infrastructure to improve access to safe drinking water for individuals served by residential wells, dam and reservoir rehabilitation if primary purpose is for drinking water, in addition to a broad set of lead remediation projects authorized by the Water Infrastructure Improvements for the Nation Act such as lead testing, among many others.

The final rule also expands the use of recovery funds for broadband infrastructure projects and recipients are encouraged “to prioritize projects that are designed to serve locations without access to reliable wireline 100/20 Mbps broadband service,” or “service that reliably provides 100 Mpbs download speed and 20 Mbps upload speed through a wireline connection,” the regulation said.

Recipients have broad flexibility to define a need for such a project in their community, which could be a lack of access to a reliable high-speed broadband connection, lack of affordable broadband or a lack of reliable service.

“Treasury encourages recipients to prioritize investments in fiber-optic infrastructure wherever feasible and to focus on projects that will achieve last-mile connections,” the regulation said. “Further, Treasury encourages recipients to prioritize support for broadband networks owned, operated by or affiliated with local governments, nonprofits, and co-operatives.”

Recipients must also require the service provider for a broadband project that provides service to households to either participate in the FCC’s Affordable Connectivity Program or provide access to a broad-based affordability program to low-income consumers that provides benefits commensurate to ACP.

The final ruling also allows for modernization of cybersecurity regardless of speed delivery standards, which would include both hardware and software.

“The American Rescue Plan Act recognizes counties’ vast responsibilities to care for our most vulnerable residents and bolster our nation’s recovery,” said NACo’s Chase. “We commend the administration for embracing the bipartisan concept of flexibility in allowing counties to use up to $10 million in Recovery Funds for important general public services.”

The up to $10 million in ARPA recovery funds for government services can be done without completing the arduous “revenue loss” calculation. If a project is less than $1 million, and the use is enumerated by Treasury as eligible, then no written justification is required.

If a project is greater than or equal to $1 million but less than $10 million and is deemed eligible, written justification is required but recipients are not required to submit to regular reporting to the Treasury. If it is deemed ineligible, then regular reporting is required. If a project is $10 million or more, written justification is required and recipients are required to report regularly, regardless if its eligible or ineligible.

The final rule also includes clarifications on how counties are able to use recovery funds for certain capital expenditures to respond to public health and economic impacts, in addition to streamlining options to provide premium pay by broadening the share of eligible workers.

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