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Coronavirus State and Local Fiscal Recovery Funds

Jennifer French

In May 2021, the U.S. Department of the Treasury announced the launch of the Coronavirus State and Local Recovery Funds, established by the American Rescue Plan Act of 2021. This Act established the Coronavirus State and Local Fiscal Recovery Funds (“Recovery Funds”) and plans to deliver $350 billion to states, local, territorial, and Tribal governments. The purpose of the Recovery Funds was to mitigate the impact of the coronavirus (“COVID-19”) to state and local governments.

The funding objectives of the Recovery Funds are to:

  • Support urgent COVID-19 response efforts to continue to decrease the spread of the virus and bring the pandemic under control
  • Replace lost public sector revenue to strengthen support for vital public services and help retain jobs
  • Support immediate economic stabilization for households and businesses
  • Address systemic public health and economic challenges that have contributed to the inequal impact of the pandemic

One item to note, the Recovery Funds are to be reported independently from the Coronavirus Relief Funds (“Relief Funds”). The Coronavirus Relief Funds were enacted by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which falls under Catalog of Federal Domestic Assistance (“CFDA”) #21.019. Originally, both the Relief Funds and the Recovery Funds were to be accounted for and reported under the same CFDA #. However, that is no longer the case as CFDA # 21.027 has recently been assigned to the Recovery Funds for reporting purposes. To expedite the payment process and meet statutory timelines, the Treasury issued initial payments under an existing CFDA #. Your records will need to be updated in your systems and reporting to reflected the official CFDA #21.027.

Funds will be remitted to governmental agencies in two installments. The first installment was distributed during May 2021 and the remaining balance will be distributed twelve months later, which is expected to be May 2022. As the fiscal year end for most governmental agencies is June 30, many have opted to not expend these funds until after July 1, 2021, in order to alleviate any reporting requirements for the FY2021 year.

As with any federal program, there are guidelines for how the funds can and cannot be expended. The U.S. Department of the Treasury has issued summaries, fact sheets, and frequently asked question documents that can be accessed on their website that provide guidance for the acceptable use of the funds. The “frequently asked questions” document was released on July 19, 2021. Keep in mind that the Recovery Funds are new and updated guidance with clarification is still being issued. So what is acceptable today, could easily change or be amended in the upcoming months.

The guidance stipulates recipients may use the Recovery Funds for the following:

  • Support public health expenditures, by funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and certain public health and safety staff.
  • Premium pay for essential workers, offering additional support to those who have borne and will bear the greatest health risks because of their service.
  • Replace lost public sector revenue, to strengthens support for vital public services and help retain jobs.
  • Investments in water, sewer and broadband infrastructure, to make improvements to access to clean drinking water, support vital wastewater and stormwater infrastructure and expand access to broadband internet.
  • Address negative economic impacts caused by the public health emergency, by responding to economic harms to workers, families, small businesses, impacted industries, and the public sector.

Per the guidance, recipients may not use Recovery Funds for:

  • Deposits to a pension fund
  • Funding that directly or indirectly offsets a reduction in net tax revenues
  • Funding debt service obligations
  • Funding legal settlements or judgments
  • Deposits to rainy day funds or financial reserves
  • General infrastructure spending that is outside of water, sewer, and broadband investments

As the Recovery Funds are significant in dollar amount, there are many challenges ahead for both state and local governments. Additional staff will be needed to administer, monitor, and perform reporting requirements. Many governments will have the opportunity to pass funds through to subrecipients, but will remain responsible for how the subrecipients qualify to receive the funds and how the funds are spent at that level. Subrecipients will be responsible for submitting reports and supporting documentation for how they expend the funds.

As a result of this additional funding, many subrecipients could now exceed the $750,000 threshold for the requirement of having a Single Audit performed. I have read that an additional 3,000 Single Audits could result from the influx of the Recovery Funds. Lastly, the Department of the Treasury who is the oversight agency for these funds will most likely perform reviews and audits relating to compliance, over the next couple of years. So it is best to plan ahead and be prepared in the event your organization is selected for review.

The best advice I can give is to document, document, and document how the funds are spent. Retain budgets, invoice copies, report copies, and subrecipient monitoring reports, for at least five years. Consider opening a separate bank account to track the funds separately. Ensure your files and data are appropriately backed up and the backup files are maintained.

Also, it is recommended to do your homework regarding the Recovery Funds: 

  • Subscribe to email updates from the U.S. Treasury
  • Download the FAQs from
  • Visit the GFOA’s website as they have resources available
  • Reach out to your auditors

In closing, the fiscal year June 30, 2022, looks to be challenging, as it will not only encompass the reporting requirements associated with the Recovery Funds, but will also be the fiscal year GASB No. 87, Leases, will be required to be implemented in addition to several other GASB pronouncements. The best advice is to begin preparations now and keep in close contact with your auditors. 

Author: Jennifer French

This article was written by Jennifer French, Principal at Strothman+Co. Jennifer has over 20 years of experience working in both public and private accounting. Her public accounting experience includes areas of audit, review, compilation, and agreed-upon procedure engagements. In her first eight years in public accounting, she worked with both tax and audit engagements. For the last four years, Jennifer has worked exclusively on audit engagements. Jennifer serves a variety of industries but specializes in serving governmental entities, employee benefit plans, manufacturing companies, school districts, nonprofits and various for-profit entities.
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