New U.S. Treasury Department Final Rule Supports State and Local Spending for Equitable Economic Recovery


The U.S. Treasury Department announced last week final rule For the $350 billion State and Local Financial Relief Fund (SLFRF) provided by the American Relief Program Act (ARPA). The rule clarifies how state and local governments, including tribal and territorial governments, can utilize the vast amount of federal resources made available to them through ARPA. The rule also encourages state and local governments to use financial relief quickly and directly, prioritizing economic recovery and equity.

This final rule supersedes interim final rule In existence since May 2021, three new elements stand out in Treasury’s final guidance. First, the rule expands the government’s ability to use funds to hire and retain public sector employees. Second, the rule provides new options to help low-income workers and families deal with the economic impact of COVID. Finally, the rule recognizes “the disproportionate impact of the pandemic on people of color” and adds additional uses of ARPA funding to address the inequalities that the pandemic has exacerbated.

The $350 billion is part of a U.S. rescue package that President Biden signed into law in March 2021 to help state and local governments mitigate the public health and economic impact of COVID-19. More than $200 billion has been distributed, and the rest will be distributed starting in May of this year. Recipient governments can use funds for a variety of purposes, as long as they fall into one of the following broad categories:

  • fight against the epidemic
  • Addressing the Economic Impact of the COVID-19 Pandemic
  • Make up for lost revenue to state and local governments
  • Provide high wages for essential workers
  • Strengthening water, sewer and broadband infrastructure

The final rule was developed after reviewing hundreds of public comments, Include comments from EPIWhile it won’t go into effect until April 1, the Treasury Department said state and local governments can begin using the new rules immediately if they so choose. Note: Rulemaking is a regular part of major legislative implementation.Rules provide greater specificity and set parameters that recipients of funds can use them (see this helpful primer here). The Treasury Department can demand reimbursement of funds spent in ways that do not comply with the final rule.

Restoring public sector capacity

The final rule greatly expands the ability of state and local governments to hire and retain public sector employees.Not only has public employment declined sharply since the start of the pandemic, it has never Full recovery from mass layoffs after the Great Recession more than ten years ago.Women and black workers are usually hardest hit Layoffs in the public sector, leading to persistent disparities in wages and employment.

The interim final rule only allows recipient governments to hire employees to achieve the same employment levels as in February 2020. However, as we mentioned above, many state and local governments continued to experience job shortage trends in February 2020 compared to before the Great Recession.In order to achieve truly adequate staffing levels – especially when COVID mitigation places huge additional demands on schools and public agencies – EPI recommends that Treasury allow the government to use ARPA funds to recruit at the 5-10% level more than Baseline before COVID. The final rule does just that, allowing recipients to increase payroll to 7.5% of pre-pandemic levels.It also allows for the use of ARPA funds to provide retention incentives and other forms of additional compensation to prevent employees from moving to different jobs, which is important because we are in the smoothest The job market we’ve seen.

There are still Public sector jobs lost by 900,000 compared to before the pandemic. Nearly two-thirds of job losses are from state and local governments — and the numbers are getting worse. It may seem impractical to allow government to exceed pre-pandemic levels when it is well below pre-pandemic levels, but this is where flexibility can help. In the final rule, a new standard allowance of $10 million further supports smaller local governments to calculate lost revenue and use that amount for government services. For example, if state governments are unable or unwilling to restore public sector jobs and services, cities and counties now have an opportunity to use ARPA funds to fill public service gaps.The devastation of the epidemic has show too clearly The public sector needs to be strengthened and the new rules will help.

More options to help low-income workers and their families

COVID is especially difficult for those who were at risk before the pandemic.low-income workers are less likely to be vaccinated, more likely (even if vaccination) must stop working caring for others with COVID and often dangerous occupation This increases their risk of getting sick.

Providing direct financial assistance to low-income workers is a simple and effective way to help them weather the ongoing economic shock of the pandemic. The final rule expands the options policymakers already have. For example, they are now allowed to use ARPA funds to provide financial services to the “unbanked and underbanked”, which will make it easier to help those who do not have regular access to our financial system.

The rule also expands the government’s ability to help low-income families pay for health insurance. While the interim final rule only allows ARPA funds to be used to help pay for COVID treatment costs, the final rule allows funds to be used for health insurance deductibles, copays, or premiums for affected households, even if those costs are not directly related to COVID.

Strengthen water, sewer and broadband infrastructure and ensure equitable access to these jobs

Additionally, the final rule expands eligible uses for investments in water and sewer infrastructure to include lead remediation and water testing programs required in schools and child care facilities.The range of eligible stormwater management projects has been expanded that will help communities address Increased pressure on water and sewer infrastructure Due to chronic underinvestment and the impact of climate change.

The final rule also further expands and clarifies eligibility for broadband infrastructure investments and continues the interim final rule’s recommendation that contracts for major projects should include project labor agreements (PLAs), community benefit agreements, local employment terms or prevailing wage rates, to ensure that public spending helps create equal access to quality jobs. State and local governments need to set strict labor standards to ensure that ARPA-funded water, sewer and broadband infrastructure projects produce good, well-paying jobs.Worker power is an important part Exit the pandemic safely.

Eliminate the disproportionate impact of the pandemic on people of color

The pandemic has only exacerbated existing racial inequality. black women make Decrease 11% to 27% Black and Hispanic workers are less likely than white men in essential jobs like education, medicine and child care Telecommuting. While the CARES Act of 2020 and related legislation helps ease The worst economic impact of the pandemic, racial disparities in wages and employment stubbornly persist, and black workers are more likely to lose their jobs and unlikely to return to work, as the economy declines and flows.

The final rule expands the permissible uses of funds to help families and communities disproportionately affected by the pandemic. A key area is housing.As the Harvard Joint Center for Housing Research shows, black and Hispanic renters face greater threat of eviction The stakes are especially high during a pandemic old tenants of color.

This recent Census data shows that 11% of renters have absolutely no confidence in their ability to pay their rent. That number increased to 16 percent of black renters and 17 percent of Hispanic renters. The final rule expands the permissible uses of ARPA funds to increase rental assistance, relocate families to neighborhoods with higher economic opportunity, and improve vacant and abandoned properties to create more affordable housing.

The rule also affirms the interim final rule’s protections for people whose housing is unsafe during the pandemic.will allow more programs like Kansas CityFor example, it uses ARPA funds to provide legal counsel to all tenants facing eviction.Safe housing leads to better health, education and employment outcomes as we continue to work with Omicron variant.

Removing barriers to pay raises for essential workers

The final rule also expands the pay raises (often called hazard pay) that essential workers are allowed to use.Premiums offer policymakers options to address four decade patterns Income inequality has increased This leaves black and brown workers further behind.Workers of color are more likely to first-line occupation eligible for premiums. Those who work in jobs that are exposed to COVID-19 on a daily basis are more likely to contract the virus and spread it to family and loved ones.

State and local governments may have been hesitant to offer premiums because they’re not sure who’s eligible to receive them, but the final rule should remove that uncertainty. There’s a list of occupations eligible for a raise, covering healthcare, food service, education, logistics and other parts of our economy, which we’ve all found to be really essential over the past two years. The steps required to determine whether a qualified worker is performing “essential work” is easy to understand and leaves little room for error.

In addition, the final rule makes clear that premium recipients should earn at or below 150% of their state or county average annual wage and should be non-exempt employees under the Fair Labor Standards Act. Premiums paid to eligible workers who do not meet these requirements require written justification to the Treasury.

So far, only a handful of states considered High wages for essential workers. There should be more, and local governments should do the same.

State and local governments should use fiscal relief funds to boost recovery

The final rule should remove any remaining uncertainty for state, territorial, tribal, and local governments in allowing and disallowing the use of ARPA funds. Now is the time to spend those funds. Almost half of dollars allocated to states in 2021 remain Unused, the remaining $350 billion will come soon. Without ARPA funding, state and local governments will not help end the pandemic, strengthen their state’s economy, or address inequality.

Policymakers should engage community groups, workers, and families in need and start directing these funds to the people and places where they will have the greatest impact.





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