HOW TO FUND SMART COMMUNITY INITIATIVES USING AMERICAN RESCUE ACT FUNDS

In January 2022, the Department of Treasury released final guidance to State, Local and County government recipients of Coronavirus State and Local Fiscal Recovery Funds (SLFRF). The guidance, including a new Overview document, is a must read for SLFRF recipients who have an interest in using SLFRF to support Smart Community projects. The new guidance constitutes a green light for Smart Community projects and should give SLFRF recipients confidence that Smart Community projects are eligible for SLFRF.

Background

On January 6, 2022, the U.S. Department of Treasury published its final rule governing the use of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). Significant to those seeking clarification about the eligibility of certain projects and solutions for SLFRF, the Department of Treasury also issued an Overview of the Final Rule document. In the Overview document, Treasury provides illustrative guidance for recipients about how they can identify, assess, and document that costs associated with a certain project are eligible for SLFRF.

A part of the American Rescue Plan (signed into Law in April 2021), SLFRF delivers $350 billion to state, local and Tribal governments. SLFRF funds must be used for costs incurred on or after March 3, 2021. SLFRF funds must be obligated by December 31, 2024 and expended by December 31, 2026.

SLFRF is intended to enable recipients to:

• Fight the pandemic and support families and businesses struggling with its public health and economic impacts,
• Maintain vital public services, even amid declines in revenue, and
• Build a strong, resilient, and equitable recovery by making investments that support long-term growth and opportunity.

The Department of Treasury received 1000+ comments in response to its Interim Final Rule issued in May 2021. According to the Treasury release, the final rule — as revised — is meant to deliver “broader flexibility and greater simplicity” in the SLFRF program.

Key Changes to The Final Rule

The Overview document accompanying the final rule identifies two significant revisions to the interim final rule.

1. The language of the final rule clarifies that recipients can use funds for capital expenditures that support an eligible COVID-19 public health or economic response.

2. The final rule provides an expanded set of households and communities that are presumed to be “impacted” and “disproportionately impacted” by the pandemic, thereby allowing recipients to use the SLFRF funding to respond to a broad set of households and entities without requiring additional analysis.

SLFRF + Smart Community Projects

The Treasury Department’s Overview document provides helpful guidance for SLFRF recipients who have an interest in funding Smart Community projects using the SLFRF. The Overview document includes several illustrative lists of eligible expenditures. A lot of potential Smart Community projects or solutions can be found on these illustrative lists. For example, costs related to projects that deploy telehealth applications or services; advance COVID-19 related public health initiatives; expand broadband access and adoption and/or deploy, repair or enable clean water infrastructure.

Just because a potential expenditure is not specifically identified as allowable in the final rule or Treasury Overview document does not, however, mean that the cost is not eligible for SLFRF. Quite to the contrary, the authors of the rule recognize that there are thousands of potential expenses that are eligible for SLFRF. Rather than try to anticipate and innumerate an exhaustive list of allowable expenses, the authors of the Overview document provided a rubric that state, local and Tribal leaders can use to assess, establish, and document the relationship between an expenditure and the goals of the SLFRF.

Eligible Expenditures Beyond Those Listed in the Final Rule + Overview

On Page 32 of the Overview document, Treasury provides a two-step rubric to help recipients assess whether costs incurred by potential project are eligible for SLFRF. Under the rubric, a SLFRF recipient should be able to answer affirmatively two threshold questions to assess whether a potential expenditure is eligible.

Question 1: Is there COVID-19 public health or negative economic impact on an individual or a class?

Question 2: Does the proposed expenditure addresses or respond to the negative economic impact — and, if so, does it do so in a manner that is proportionate to the negative impact.

Treasury’s Overview document (Pages 32–34) provides guidance about assessing whether a proposed response is proportionate to the negative impact a given response seeks to address. The Overview also directs recipients to document in their files their answers to the threshold questions. Written justification must be submitted to Treasury for capital expenditures that exceed $1million (if a proposed use case is not explicitly listed in Treasury’s final rule) and for capital expenditures more than $10million for use cases that are explicated listed in the final rule.

Answering Treasury’s Threshold Questions for Three Example Smart Community Projects

Example #1 — Deployment of Wi-Fi in a Community’s Central Gathering Areas

Q1: Is there an Impacted Class? A: Yes-Small Businesses

Q2: Is expenditure responsive to impacted class? A: Yes-Economic analysis of potential benefit of Public Wi-Fi to business based in/near a Community’s central gathering areas

Example #2 — Deployment of Smart Water Monitoring and Leak Detection Solutions

Q1: Is there an Impacted Class? A: Yes-Community residents

Q2: Expenditure responsive to impacted class? A: Yes-Cost of Smart Water Monitoring + Leak Detection solutions is proportionate to project’s benefits to community residents

Example #3 — Smart Building Solutions

Q1: Is there an Impacted Class? A: Yes-K-16 students, small busines employers and employees

Q2: Expenditure responsive to impacted class? A: Yes-Deploying advanced air quality sensors and using wireless technology schools and workplaces can be made safer for occupants

For most Smart Community projects-including the examples above-there exists documentation about the positive impact of a given project/solution on a household or community. Baked into the DNA of effective Smart Community projects is a goal related to the project’s positive impact on the safety and prosperity of residents and the livability and equality of communities. Following Treasury’s direction, SLFRF recipients and their Smart Community project partners should be able to answer the threshold questions posed by Treasury as a part of the development of any proposed Smart Community project, document their answers and move forward without delay.

About this Medium Site

On this Medium site, I explore an array of topics related to the transformative power of smart and connected communities. A central question for this observer of the so-called smart community movement: how will municipalities, real estate developers, universities and other leading organizations develop, deploy and support smart and connected community projects at scale?

I welcome feedback and comments from readers.