On May 10, the U.S. Treasury Department released its interim final rule on the use of the American Rescue Plan (ARP) Act’s State and Local Fiscal Recovery Funds. While the publication of most federal regulations doesn’t usually turn a lot of heads, this one is different: It will govern the allocation of $350 billion that ARP provided to states, counties, cities, and tribal and territorial governments without a great deal of statutory guidance.

Indeed, ARP makes clear that these funds provide greater flexibility than similar resources provided under the CARES Act from spring 2020.

That noted, ARP does specify that fiscal recovery funds have four authorized uses:

  • Responding to public health needs and economic damage from the pandemic
  • Providing premium (i.e., hazard) pay for essential workers
  • Replacing lost revenue
  • Investing in necessary water and broadband infrastructure
  • ARP also restricts receiving governments from using the funds to offset tax cuts or to shore up public pensions (more on that below).

This being an interim final rule, the Treasury Department can still change it, and will be considering feedback submitted through the federal eRulemaking portal. For now, we see four key takeaways from the rule that can guide state, local, and tribal leaders’ decisions about how to deploy the funds toward promoting what the rule terms a “stronger, more equitable economy.”

Read the full article about state and local fiscal relief by Eli Byerly Duke and Alan Berube at Brookings.