Treasury broadens COVID relief uses for states, localities

State and local governments will have greater flexibility to spend $350 billion of federal COVID-19 aid under new rules from President Joe Biden’s administration.

The revised rules mean that most cities and counties will be free to spend their entire allotment on any government services without having to prove they lost revenue during the pandemic. The rules also allow spending on more types of construction and a wider range of high-speed internet projects, among other things.

The final U.S. Treasury Department rules come nearly 10 months after Biden signed the massive $1.9 trillion American Rescue Plan that included aid for state, local and tribal governments. The money was intended to help shore up their finances, pay the ongoing costs of fighting the virus and invest in longer-term projects to strengthen communities.

But some government officials had been hesitant to make spending decisions until they could get greater certainty from federal officials about what was allowed. The new rules could relieve that anxiety.

"I think we’re going to see in the next month or two a lot more spending, particularly by small local governments who had been sort of waiting out the time until this final rule came out," Michael Wallace, legislative director for housing, community and economic development at the National League of Cities, said Friday

Some local officials had complained that the Treasury’s initial guidelines, issued last May, were too vague in some regards and too rigid in others. In addition to pressing the Treasury for changes, local government groups also had been lobbying Congress to intervene with relaxed criteria.

The Treasury said it was responding to the feedback by allowing "broader flexibility and greater simplicity in the program."

"As the Delta and Omicron variants have illustrated, pandemic response needs will continue to evolve," Deputy Treasury Secretary Wally Adeyemo said in a statement Thursday when the agency released its rules. "These funds ensure that governments across the country have the flexibility they need to vaccinate their communities, keep schools open, support small businesses, prevent layoffs, and ensure a long-term recovery."

One of the most significant changes will let state and local governments claim up to $10 million of revenue losses during the pandemic without having to prove it. Federal money used to replace lost revenue comes with maximum flexibility, meaning it can go toward projects such as road repairs that would not otherwise be eligible. That $10 million threshold covers the entire allotment for many smaller cities and for about 70% of counties.

"It really allows for counties to be able to use the funding in ways in which they know can best support their communities and residents," Eryn Hurley, deputy director of government affairs for the National Association of Counties, said Friday.

Local officials also had pushed for greater flexibility on infrastructure spending, which is generally limited to water, sewer and broadband internet.

The final rules allow money to be used for culvert repairs along roads and to rehabilitate dams and reservoirs that supply drinking water. Funding for broadband can be used to improve cybersecurity and provide faster connections in areas that already have service – opening the way for more internet improvements in cities, instead of primarily rural areas.

Treasury’s initial rules focused on areas that lack reliable cable or wire internet speeds of at least 25 megabits per second for downloading and 3 Mbps for uploading. The final rules encourage entities to focus on areas lacking download speeds of 100 Mbps and upload speeds of 20 Mbps.

The rules also clarify that the money can go toward construction of affordable housing, childcare facilities, schools, hospitals and other projects. But some things generally remain off limits, including prisons, stadiums and convention centers.

The rules also presume an expanded set of households have been disproportionately affected by the pandemic, allowing a greater array of services to them.

Governments also will be able to use the federal aid to rebuild their workforce to levels above their pre-pandemic staffing and can provide premium pay to a broader share of workers.