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Treasury Releases Interim Final Rule Proposing Changes to Definition of “Obligation” for ARPA State and Local Fiscal Recovery Fund; Public Comments due December 20

The U.S. Department of the Treasury issued an Interim Final Rule (IFR) in November providing additional flexibility in the definition of “obligation” for State and Local Fiscal Recovery Funds (SLFRF) provided through the American Rescue Plan Act.  The IFR was published in the Federal Register on November 20 and takes effect immediately, but Treasury is seeking public comments, which are due by December 20.  Treasury recommends that comments be submitted electronically; comments should be captioned with “Coronavirus State and Local Fiscal Recovery Funds Obligation Interim Final Rule Comments,” along with the commenter’s name, organization affiliation, address, email address, and telephone number.  The text of the IFR as published in the Federal Register, along with instructions for submitting public comment, may be found at this link.  A quick reference guide published by Treasury is available at this link.  A recording of a webinar by Treasury providing an overview of the IFR is available at this link, and the webinar slides are posted at this link.

Treasury explains in the IFR that it is amending the definition of “obligation” to address concerns expressed by SLFRF recipients about anticipated difficulty in using SLFRF dollars to meet administrative and legal requirements associated with SLFRF after the December 31, 2024, obligation deadline.  The IFR does not change the existing deadlines to obligate and expend funds.  However, Treasury is proposing to expand the definition of “obligation” such that “a recipient is also considered to have incurred an obligation by December 31, 2024, with respect to a requirement under federal law or regulation or a provision of the SLFRF award terms and conditions to which the recipient becomes subject as a result of receiving or expending SLFRF funds,” and a recipient may use SLFRF funds to meet such a requirement.  Such expenditures include reporting and compliance requirements; Single Audit costs; record retention and internal control requirements; costs to comply with property standards; environmental compliance requirements; and civil rights and nondiscrimination requirements.  To take advantage of this flexibility, recipients must “(1) determine the amount of SLFRF funds the recipient estimates it will use to cover such expenditures, (2) document a reasonable justification for this estimate, (3) report that amount to Treasury by April 30, 2024, with an explanation of how the amount was determined, and (4) report at award closeout the final amount expended for these costs.”

The IFR also clarifies that recipients are permitted to replace a contract or subaward that was entered into prior to December 31, 2024, after that date under certain circumstances detailed in the IFR, such as the termination of the contract or subaward due to the contractor or subawardee going out of business, or a determination that the contractor or subrecipient will not be able to perform under the contract or carry out the subaward.

VACo Contact:  Katie Boyle

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