What spending is in the American rescue plan?

Fiscal Recovery Fund Spending by States, U.S. Territories In addition to targeted aid for child care, eviction prevention, and other services, the Rescue Plan provided $350 billion in Fiscal Recovery Funds for states, localities, tribal nations, and U.S. Territories to spend over four years.

Does ARPA allow indirect costs?

Indirect costs must be budgeted within the specific dollar amount awarded in the ARPA grant . The awarded agency cannot budget indirect costs in excess of the grant award amount.

What does the American rescue plan fund?

The American Rescue Plan will provide emergency grants, lending, and investment to hard-hit small businesses so they can rehire and retain workers and purchase the health and sanitation equipment they need to keep workers safe.

Is the American Rescue Plan still in effect for 2022?

The American Rescue Plan Act of 2021 (ARPA) included the largest expansion of the premium tax credit (PTC) since the enactment of the Affordable Care Act (ACA), but only for calendar years 2021 and 2022 .

What can ARPA funds be spent on?

Cities can use ARPA funds to: Support public health expenditures; Address the negative economic impacts caused by the public health emergency; Replace lost public sector revenue; Provide premium pay for essential workers; and. Invest in water, sewer, and broadband infrastructure.

What qualifies as indirect costs in a grant?

What are indirect costs? Indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the organization and the conduct of activities it performs.

What are examples of indirect costs in a grant?

Examples of indirect costs include the salary and related expenses of individuals working in accounting, personnel, purchasing functions, rent, depreciation and utilities . Indirect costs are not normally charged directly to a Federal award, but are allocated equitably to all of the organization's activities.

What is excluded from indirect costs?

Direct salaries and wages including (or excluding) all fringe benefits . 2. Direct salaries and wages including vacation, holiday, sick pay, and other paid absences but excluding all other fringe benefits.

American Rescue Plan Act of 2021: Allowable Costs and Cost Principles (Including Sample Policy and Implementation Tools) - Coates’ Canons NC Local Government Law (2024)

Update August 2022: On July 27, 2022, in its Final Rule FAQs US Treasury exempted revenue replacement ARP/CSLFRF expenditures from some Uniform Guidance provisions, including the detailed cost item regulations. Revenue replacement expenditures continue to be subject to the general allowable cost review.

Update: On January 6, 2022, the U.S. Department of the Treasury issued the Final Rule, which governs the eligible uses of Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”) under the American Rescue Plan Act (“ARPA”). The Final Rule makes several key changes to the Interim Final Rule, including expanding the eligible uses of CSLFRF and easing the administrative burden for some program requirements. Please review the Final Rule to learn more about the updated CSLFRF program requirements. (Treasury has also published these helpful resources: overview of the Final Rule and a Compliance and Reporting Guidance (updated 11/15/21).) As always, consult your local attorney with questions.

Expenditures of ARP/CSLFRF Funds continue to be subject to most of the federal Uniform Guidance provisions, including those related to Cost Prinicples/Allowable Costs discussed below.

Most NC counties and municipalities have received their first of two distributions of Coronavirus State and Local Fiscal Recovery Fund monies, as part of the American Rescue Plan Act of 2021 (ARP/CSLFRF). Understandably, many local officials have been focused on identifying eligible projects. It is important to also understand all of the “strings” attached to these funds. Among other things, expenditure of these funds are subject to most provisions of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR Part 200 (commonly referred to as the Uniform Guidance or UG). The UG is a set of regulations that apply to the management of federal grant awards.

Based on the Assistance Listing: Coronavirus State and Local Fiscal Recovery Funds and Part 2 of theUS Treasury State and Local Fiscal Recovery Funds Compliance and Reporting Guidance (Compliance Guide), the following UG provisions apply to the ARP/CSLFRF grant award:

Subpart A, Acronyms and Definitions
Subpart B, General provisions
Subpart C, Pre-Federal Award Requirements and Contents of Federal Awards(except 2 CFR 200.204, .205, .210, and .213)
Subpart D, Post Federal; Award Requirements(except 2 CFR 200.305(b)(8) & (9), .308, .309, and .320(c)(4))
Subpart E, Cost Principles
Subpart F, Audit Requirements
2 CFR Part 25(Universal Identifier & System for Award Management)
2 CFR Part 170(Reporting Subaward and Executive Compensation Information)
2 CFR Part180(OMB Guidelines to Agencies on Governmentwide Debarment and Suspension (Non-procurement)

Most of these UG provisions impose process and internal control requirements, but some impose limitations on when, how, and for what purposes federal grant funds may be spent. The UG requirements are in addition to those imposed by the Final Rule related to project eligibility. Many of the UG provisions require that the grant recipient adopt and implement policies and procedures to ensure compliance with its requirements. This is the first in a series of blog posts that will walk through the major UG areas of focus and provide guidance on local government compliance efforts, including, where applicable, sample policies and checklists.

This post focuses on the requirements in Subpart E, related to Cost Principles. Fair warning that this is a long post with a lot of detail. It may take a few reads to put all the pieces together. There is a section at the end addressing the requirements for local governments that elect the standard allowance and expend their full allocation as revenue replacement.

What are Cost Principles?

A local government recipient of ARP/CSLFRF monies is responsible for ensuring that funds are spent for appropriate purposes. There are multiple dimensions to this requirement. First, a local government needs to define a project and determine that project is eligible according to the terms of the grant award. Each project must fit within a single Expenditure Category, as defined in US Treasury’s Final Rule. A local government must implement a process for making and confirming eligibility determinations and record its findings and justifications, as well as any additional required documentation. In our ARP/CSLFRF Course in October 2021, we discussed this process and how it relates to tracking data for the required Project and Expenditure report here. We also introduced a(updated January 2022).Although necessary, these processes are not sufficient to ensure a project fully complies with the grant award.

A local government must also ensure that the cost items within a project conform to the UG’s Cost Principles. This is true even if a local government takes the standard allowance and expends all of its ARP/CSLFRF funds under the revenue replacement category. According to the Compliance Guide,

allowable costs are based on the premise that a recipient is responsible for the effective administration of Federal awards, application of sound management practices, and administration of Federal funds in a manner consistent with the program objectives and terms and conditions of the award. Recipients must implement robust internal controls and effective monitoring to ensure compliance with the Cost Principles, which are important for building trust and accountability.

Cost principles apply to cost items, which are the specific cost objects or functions. Typical cost items include compensation and fringe benefits, materials and supplies, equipment and other capital, consultants/professional services, audits, communications, insurance, maintenance and repair, and rental costs. Some of these are associated with a particular project; others are associated with the entire grant award. Read together, the IFR, Compliance Guide, and UG outline the cost items that are allowable, allowable with limitations, and unallowable.

Basic UG Cost Principles Analysis

For all potential cost items, the UG Cost Principles require that a local government perform a basic review to ensure that the cost items are (1) allowable; (2) allocable; (3) reasonable; (4) consistently applied; and (5) adequately documented.

Allowable. A cost is allowable when it is compliant with the terms and conditions of the federal award and implementing agency regulations, and the UG. As discussed below, the UG has documented certain specific cost items, some of which are always allowable, some of which are allowable with limitations, some of which are allowable only with permission of the granting agency, and some of which are never allowable. Further, several of the specific cost items require special documentation. A local government must be well-versed in these specified items of costs when performing its cost allowability review.

Allocable. A cost is allocable if either (1) it is incurred solely to benefit an ARP/CSLFRF-eligible project or (2) it benefits both an ARP/CSLFRF-eligible project and another ARP/CSLFRF-eligible project or other work of the local government, in proportions that can be approximated using reasonable methods. A local government must use a consistent method for allocating costs. Some costs will be charged directly to the grant award and other costs will be included in an indirect cost pool.

Reasonable. A cost is reasonable when, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circ*mstances prevailing at the time the decision was made to incur the cost. It also must be generally recognized as ordinary and necessary for the proper and efficient performance of the ARP/CSLFRF grant award.

Consistently applied. A cost is consistently applied when it is applied uniformly to both federally-funded and other activities of the local government.

Properly documented. A local government must document its allocation method and its system of internal controls that provide reasonable assurance that amounts charged are accurate, allowable, and properly allocated.

A local government will adopt a UG Cost Principles Policy to guide its implementation of these requirements (see sample below).

Specific Items of Cost

As mentioned above, the UG details several specific items of cost. Not all of these will be relevant to a local government’s expenditure of ARP/CSLFRF monies. In fact, a local government likely will only utilize a handful of cost items for most of its ARP/CSLFRF projects. Local officials, particularly those charged with reviewing projects for conformance with UG Cost Principles, need to understand the specifics of each applicable cost item.

This chart lists the specific cost items, with their UG citations. A local unit may wish to adapt this chart to reflect the cost items it will use in its ARP/CSLFRF projects to streamline its review process. I’ve highlighted several cost items that likely will be of particular importance to local governments.

As of July 27, 2022, US Treasury has exempted revenue replacement ARP/CSLFRF expenditures from compliance with the specific cost item regulations. They continue to apply to expenditures in other ARP/CSLFRF categories.

Example Specific Cost Item – Compensation & Fringe Benefits

To illustrate the required analysis for specific cost items, let’s review Compensation – personal services and Compensation – fringe benefits. These will be common cost items for most ARP/CSLFRF projects. To determine what are allowable compensation and fringe benefit costs, we need to look at the terms of the ARP/CSLFRF grant award, Compliance Guide, US Treasury FAQs, and 2 CFR Sects. 200.430 and .431. (As you’ll quickly see below, there is a lot to factor into this analysis, but most of it will boil down to adopting proper internal control procedures related to documenting eligible compensation and fringe benefit expenses.)

Starting with the Compliance Guide, it states that “[i]n general, certain employees’ wages, salaries, and covered benefits are an eligible use of [ARP/CSLFRF] award funds. Please see Treasury’s Interim Final Rule for details.”

Turning to the Final Rule, there are a number of different scenarios under which local government employees’ salaries and fringe benefits will be paid by ARP/CSLFRF funds, including:

Direct or indirect charges for salaries and fringe benefits of local government employees who carry out ARP/CSLFRF-eligible projects.
Salaries and benefits of local government employees performing general government services paid for with revenue replacement ARP/CSLFRF funds.
Salaries and benefits of public health, public safety, and social services employees, to the extent they are dedicated to COVID-19 response.
Premium pay for local government employees performing essential work during the pandemic.
Self-insured local government expenses for employee COVID-19 treatment, including the long-term symptoms or effects of COVID-19.
Salaries and fringe benefits paid to employees to replenish the local government workforce to pre-pandemic levels.
Expenses of providing paid sick and paid family and medical leave to local government employees to enable compliance with COVID-19 public health precautions.
Direct or indirect charges for salaries and benefits paid by subrecipients to carry out an ARP/CSLFRF-eligible projects.

Finally, the applicable UG provisions impose some limitations and documentation requirements. Specifically, 2 CFR 200.430 states, in relevant part:

(a)General.Compensation for personal services includes all remuneration, paid currently or accrued, for services of employees rendered during the period of performance under the Federal award, including but not necessarily limited to wages and salaries. Compensation for personal services may also include fringe benefits which are addressed in§ 200.431. Costs of compensation are allowable to the extent that they satisfy the specific requirements of this part, and that the total compensation for individual employees:

(1)Is reasonable for the services rendered and conforms to the established written policy of the non-Federal entity consistently applied to both Federal and non-Federal activities;

(2)Follows an appointment made in accordance with a non-Federal entity’s laws and/or rules or written policies and meets the requirements of Federal statute, where applicable; and

(3)Is determined and supported as provided inparagraph (i)of this section, when applicable.

(b)Reasonableness.Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the non-Federal entity. In cases where the kinds of employees required for Federal awards are not found in the other activities of the non-Federal entity, compensation will be considered reasonable to the extent that it is comparable to that paid for similar work in the labor market in which the non-Federal entity competes for the kind of employees involved.

…

(e)Special considerations.Special considerations in determining allowability of compensation will be given to any change in a non-Federal entity’s compensation policy resulting in a substantial increase in its employees’ level of compensation (particularly when the change was concurrent with an increase in the ratio of Federal awards to other activities) or any change in the treatment of allowability of specific types of compensation due to changes in Federal policy.

(f)Incentive compensation.Incentive compensation to employees based on cost reduction, or efficient performance, suggestion awards, safety awards, etc., is allowable to the extent that the overall compensation is determined to be reasonable and such costs are paid or accrued pursuant to an agreement entered into in good faith between the non-Federal entity and the employees before the services were rendered, or pursuant to an established plan followed by the non-Federal entity so consistently as to imply, in effect, an agreement to make such payment.

…

(i) Standards for Documentation of Personnel Expenses

(1)Charges to Federal awards for salaries and wages must be based on records that accurately reflect the work performed. These records must:

(i)Be supported by a system of internal control which provides reasonable assurance that the charges are accurate, allowable, and properly allocated;

(ii)Be incorporated into the official records of the non-Federal entity;

(iii)Reasonably reflect the total activity for which the employee is compensated by the non-Federal entity, not exceeding 100% of compensated activities (for IHE, this per the IHE’s definition of IBS);

(iv)Encompass federally-assisted and all other activities compensated by the non-Federal entity on an integrated basis, but may include the use of subsidiary records as defined in the non-Federal entity’s written policy;

(v)Comply with the established accounting policies and practices of the non-Federal entity; and

(vi)[Reserved]

Example Specific Cost Item — Audit Costs

Another common cost item that will apply to administering the entire grant award is auditing. According to theCompliance Guide,

per 2 CFR 200.425, a reasonably proportionate share of the costs of audits required by the Single Audit Act Amendments of 1996 are allowable; however, costs for audits that were not performed in accordance with 2 CFR Part 200, Subpart F are not allowable.

So ARP/CSLFRF funds may be used to cover the costs of a Single Audit that are reasonably connected to auditing the grant award monies. ARP/CSLFR funds may not be used to cover audit costs for units that are exempt from the Single Audit because their total federal award expenditures are less than $750,000 during the fiscal year. They also may not be used to cover the costs of Single Audits that are not done in accordance with the UG requirements.

Example Specific Cost Item — Capital Expenditures

Many local governments will use their ARP/CSLFRF funds fro capital expenditures. These are typically governed by 2 CFR 200.439. That provision prohibits many capital expenditures without prior written authorization of the granting agency. However, we have to read this provision in context with the ARP law and Final Rule. The ARP/CSLFRF explicitly authorizes local governments to use ARP/CSLFRF funds to make certain capital expenditures (e.g necessary water, wastewater, and broadband infrastructure, certain affordable housing, general government capital expenditures under the revenue replacement category, etc.). US Treasury has indicated that it will not pre-approve any projects, so we have to interpret the law and enabling regulations themselves, as providing approval for the eligible capital expenditures.

In the Final Rule, US Treasury did establish a process for evaluating certain capital expenditures–specifically those that fall within the responding to the COVID-19 public health crisis and its negative economic impact category. For proposed capital expenditures that fall within this category ONLY, a local government must do the following:

If a project has total expected capital expenditures of	and the use is an enumerated (safe harbor) project	and the use is not an enumerated (safe harbor) project
Less than $1 million	No Written Justification required	No Written Justification required
Greater than or equal to $1 million, but less than $10 million	Written Justification required but recipients are not required to submit as part of regular reporting to Treasury	Written Justification required and recipients must submit as part of regular reporting to Treasury
$10 million or more	Written Justification required and recipients must submit as part of regular reporting to Treasury

The written justification must include the following elements:

Describe the harm or need to be addressed;
Explain why a capital expenditure is appropriate; and
Compare the proposed capital expenditure to at least two alternative capital expenditures and demonstrate why the proposed capital expenditure is superior.

This written justification requirement does not apply to capital expenditures in the necessary water, wastewater, and broadband category or the revenue replacement category. A local government is free to engage in those capital expenditures without further process or approval, was long as they are consistent with the eligibility requirements of the category.

Other Cost Items

A local government will repeat this general analysis, consulting all the same sources, for each specific cost item to determine allowable costs (although most of the other cost items will not be as involved as compensation and fringe benefits!)

Direct vs. Indirect Costs

If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit. This is referred to as a direct cost. In other words, a direct cost is an expense that is specifically associated with a particular ARP/CSLFRF-eligible project and that can be directly assigned to such activity relatively easily with a high degree of accuracy. See 2 CFR 200.413. Common examples of direct costs include salary and fringe benefits of personnel directly involved in undertaking an eligible project, equipment and supplies for the project, contracted services for the project, or other materials consumed or expended in the performance of the project.

There are some costs that cannot be proportionally allocated among projects without undue effort. The UG allows a portion of these costs to be charged to the grant award as indirect costs. An indirect cost is (1) incurred for a common or joint purpose benefitting more than one ARP/CSLFRF-eligible project or an ARP/CSLFRF-eligible project and other local government activities, and (2) not readily assignable to the ARP/CSLFRF-eligible project specifically benefited, without effort disproportionate to the results achieved. See 2 CFR 200.414.

What about administrative costs – are they charged as direct or indirect costs? In the Compliance Guide, US Treasury indicates that administrative costs may be treated as either direct or indirect charges, as appropriate.

Administrative costs: Recipients may use funds for administering the [ARP/CSLFRF] program, including costs of consultants to support effective management and oversight, including consultation for ensuring compliance with legal, regulatory, and other requirements. [Recipients also may use ARP/CSLFRF funds directly for administrative costs to improve efficacy of programs that respond to the COVID-19 public health emergency.] Further, costs must be reasonable and allocable as outlined in 2 CFR 200.404 and 2 CFR 200.405. Pursuant to the [ARP/CSLFRF] Award Terms and Conditions, recipients are permitted to charge both direct and indirect costs to their [ARP/CSLFRF] award as administrative costs. Direct costs are those that are identified specifically as costs of implementing the [ARP/CSLFRF] program objectives, such as contract support, materials, and supplies for a project. Indirect costs are general overhead costs of an organization where a portion of such costs are allocable to the [ARP/CSLFRF] award such as the cost of facilities or administrative functions like a director’s office. Each category of cost should be treated consistently in like circ*mstances as direct or indirect, and recipients may not charge the same administrative costs to both direct and indirect cost categories, or to other programs.

Some local governments have an existing Negotiated Indirect Costs Rate Agreement (NICRA) established with a Federal cognizant agency responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost proposals. If a local government has a NICRA it may, but is not required to, use the NICRA rate to calculate indirect costs for its ARP/CSLFRF award. If a local government does not have a NICRA (or chooses not to use its NICRA), it may elect to use the de minimis rate of 10 percent of the modified total direct costs(MTDC). See 2 CFR 200.414(f). According to 2 CFR 200.68, MTDCmeans all direct salaries and wages, applicable fringe benefits, materials andsupplies, services, travel, and up to the first $25,000 of each subaward (regardless of theperiod of performanceof thesubawardsunder the award). MTDC EXCLUDESequipment,capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships,participant support costsand the portion of eachsubawardin excess of $25,000.

A local government must consistently apply its direct versus indirect cost categorization across ARP/CSLFRF projects. A key part of a project’s cost allowability review will be calculating and applying the appropriate indirect cost charge.

Sample UG Cost Principles Policy

As stated above, a local government must adopt a UG Cost Principles Policy to implement internal controls ensuring proper cost allowability determinations. The policy should reflect the legal requirements and, importantly, should also detail the cost allowability review processes the local government will follow both as part of a project’s pre-approval process and as part of the unit’s normal disbursem*nt process. (The disbursem*nt process is the state law process for paying invoices or other demands for payment. See G.S. 159-28.) The policy should assign specific roles and responsibilities to individual departments or positions within the local government. And it should incorporate appropriate documentation and oversight measures.

Here is a link to a Sample Allowable Cost Policywith a caveat. A one-size-fits-all policy may work on paper, but it will not work in practice. A local government must adapt the sample policy to fit the realities of its internal controls and review processes. It is essential that a local government carefully follow whatever policy it adopts, so local officials must ensure that they have the capacity to implement the processes dictated by the policy. And I strongly recommend that you have any sample (or example) policy reviewed by your local attorney. He/she must ensure full legal compliance. (I also welcome any suggestions for proposed edits/additions/other modifications to the sample policy as individual units perform your review!)