Obligation Interim Final Rule

Since the American Rescue Plan Act (ARPA) was passed by Congress on March 11, 2021, the U.S. Treasury has released evolving guidance to assist recipients in navigating the compliant use of State and Local Fiscal Recovery Funds (SLFRF). On November 9th, 2023, Treasury released the Obligation Interim Final Rule (Obligation IFR) to provide recipients clarification regarding obligations and managing SLFRF after the December 31st, 2024 obligation deadline. The Obligation IFR provides clarity and specific guidance on:

• Period of performance for SLFRF
• Definition of obligation
• Allowable use of estimated obligations for certain legal and administrative costs
• Elimination of the obligation deadline for sub-recipients
• Reassigning obligations after the obligation deadline

Period of Performance

SLFRF are intended to assist governments with their recovery from the Public Health and Negative Economic (PHNE) impacts of the pandemic. Additionally, through the 2022 Consolidated Appropriations Act (CAA), SLFRF uses were expanded to include responding to natural disasters, expanded non-federal grant match and gap financing, and loan repayment for certain Surface Transportation programs adopted. The Obligation IFR clarifies that the period of performance to address PHNE impacts starts on March 3, 2021, and ends on December 31st, 2026.? However, for the expanded uses under the CAA, the period of performance begins on December 29, 2022, and ends on September 30, 2026. The obligation deadline of December 31st, 2024 remains the same for any allowable uses of SLFRF.

Revised Obligation Definition

For SLFRF, Treasury defined “obligation” as “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment” (31 CFR 35.5(b). Obligations incurred as a result of receiving or expending SLFRF funds due to requirements resulting from federal law or regulation or a provision of the SLFRF Terms and Conditions, are subject to special treatment. Recipients may use SLFRF funds to cover the legal and administrative include costs associated with:

• Reporting and compliance requirements, including subrecipient monitoring and data collection, maintenance of data, and review and processing of invoices
• Audits required under the Single Audit Act
• Record Retention through the close-out of the award
• Internal controls required to ensure program integrity
• Complying with federal retained interest in property acquired or improved with SLFRF
• Civil rights and non-discrimination complaints and resolution related to SLFRF-funded projects

Estimating Administrative and Legal Obligations

While legal and administrative costs are eligible expenditures, the U.S. Treasury recognizes that recipients may incur these costs without recording a formal order or entering a contract, as is the case with payroll costs. Treasury is permitting recipients to make reasonable projections of these costs through the period of performance and record these estimates as obligation in their Quarter 1 Project and Expenditure Report due April 30th, 2024. Recipients who have elected to account for legal and administrative costs associated with the management of their SLFRF award through application of an indirect cost rate (either NICRA or de minimus) may continue to do so by estimating these charges through the period of performance.

No Obligation Flow Down

Treasury further clarified that the obligation deadline is only applicable to recipients. Subrecipients are not required to obligate funds by December 31st, 2024, but they must expend them by the expenditure deadline.

Reassignment of Obligations

Aligning to proposed changes from the Office of Budget and Management to 2 CFR 200 (Uniform Guidance) the U.S. Treasury recognizes that there are circumstances under which a contractor or subrecipient can no longer carry out a project. In the Obligation IFR, Treasury states that recipients can reassign by canceling the subaward or contract and reissuing funds only in the following circumstances:

• Recipient terminates the subaward due to the contractor’s or subrecipient’s default
• Recipient terminates because the recipient determines that the contractor or subrecipient will not be able to perform or carry out the subaward
• Mutual agreement to terminate the subaward between the recipient and contractor or subrecipient
• Recipient determines that an award was not properly awarded. This may occur as a result of an auditor’s determination and may be required to cure a material finding to minimize ongoing concerns.

Although this change allows recipients to re-award funds for a project after December 31, 2024, Treasury is not permitting recipients to reallocate funds between projects when a subaward is terminated after the obligation deadline. All unobligated and unexpended funds will need to be remitted to Treasury after December 31, 2024, and December 31st, 2026, respectively.

For more information, visit Treasury’s State and Local Fiscal Recovery Funds website.

BRONNER’s experts understand the intricacies of SLFRF and the challenges that governments face in delivering impactful compliant projects. BRONNER has deep expertise in developing and deploying accountability frameworks across the federal fund landscape, including CARES, CRF, FEMA and ARPA.

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Lukasz Stykowski, MPP, BRONNER Government Services Consultant