State and Local Fiscal Recovery Funds (SLFRF) Obligation IFR Webinar

hi thank you all for joining this afternoon I'm Laura McDaniel and today our team is going to talk with you about the obligation inim final rule for the state and local fiscal recovery funds program recently released by treasury throughout this presentation we'll refer to the obligation interim final rule as the obligation IFR the obligation IFR revises the definition of obligation and provides additional clarifications and guidance to recipients following along in the obligation IFR quick reference guide as well as the obligation IFR itself will be helpful to you as we go through this presentation the slides and the video recording of the session will be available to you after the session today we will provide a brief background on the state and local fiscal recovery funds program followed by an overview of the obligation IFR then we will go into further detail by reviewing the guidance in the obligation IFR and providing examples of how you may apply it to your implementation of state and local fiscal recovery funds finally we will review the guidelines for the 30-day public comment period which will begin after the obligation interim final rule is published in the Federal Register before we go into details I would like to turn to thef program director Vero for some opening remarks Vero thank you Laura well good afternoon uh if it's afternoon in your time zone thank you very much for joining us my name is Veronica sto I go by vetto and I'm the slf frf program director uh I've been with the program since August but I have been in the office of Treasury here uh in a previous role for over a year um and I'm very happy to be able to have you join us um I want to start by expressing my gratitud gratitude uh my thanks to all of you for working so hard on impl implementing the slf RF program um every time we have reporting due we put out a Blog about um the the things we see in the data that you submit to us and we highlight uh examples of the great work that many of your communities are doing for example in the July 2023 data release the treasury blog mentioned that the city of Baker herfield California is budgeting $9 million in slf RF funds to support long-term housing security including the development and Rehabilitation of affordable housing involving new construction and infield development and that investment is just one of over 2,760 projects funded with slrf for affordable housing we have over 17.7 billion of funds budgeted in this expenditure category in that blog we also highlighted Okala County Florida where they're utilizing two $2.5 million on a two-face project to expand affordable broadband service and that is one of over 12,000 projects utilizing slf red funds for infrastructure water sewer and Broadband projects in their communities so these two projects are only two examples of the many thousands of projects that are helping communities build on an equitable recovery through the use of slf funds we know those projects make a difference in your communities and we know that you want to administer and implement the program to the best of your abilities and so we want to acknowledge all the questions we have received around implementation around the obligation definition um we we know there was a lot of diligence in getting detailed feedback to us asking questions giving us real examples all of those um are issues you faced as you're trying to implement the program and the feedback on the obligations deadline and the issues you're facing were critical in helping develop this IFR and so I want to thank you for those questions and I want to thank you for all the work you're doing to implement the program so uh with that uh we're going to go ahead and talk about the obligation IFR and so I want to start just a review of the program highlighted a couple of examples shared the the blog uh in terms of the data we see but as you all are aware in the next slide um in 2021 president bid Biden signed the American Rescue plan act into law and that has resulted in one of the strongest and most Equitable periods of economic growth in a century the American Rescue plan included the state and local fiscal recovery funds or as we call it the slf frf program and If I Stumble with those initials forgive me it's hard to say but easy to love and so the slf RF program delivered 350 billion to States territories localities and tribal governments across the country to build a strong resilient and equitable recovery to date more than 99.99% of the funding of that 350 billion has been distributed to more than 30,000 recipient governments the obligation IFR we are discussing on this webinar today relates to the slf award funds that your government already has received Congress has not appropriated additional dollars to the slf frf program recipients can find information on the seven eligible use categories on reporting requirements and other key resources resources on treasury's website at treasury.gov sfrf and in this slide we have some important documents that recipients can access to learn more about the slf ref program so we'll go on to the next slide and this is important because it's part of the reason we wanted to get this obligation IFR uh out because the deadlines matter so now we will review the timeline for using slf funds and I saw a question um and I hope that this slide I saw question in the Q&A so I hope this uh answers that question that I saw so award funds may be used for cost incurred from March 3rd 2021 for all eligible uses except emergency relief from natural disasters surface Transportation projects and Title One projects for these uses funds may be used to cover cost incurred beginning December 21 2022 the reason for these different dates are because Congress enacted changes to the eligible eligible uses at different times for all seven eligible uses recipients must obligate as funds by December 31 2024 we're going to say that date many times throughout this presentation so again for all seven eligible uses recipients must obligate slf funds by December 31st 2024 recipients must expend that that means spend the slf rare funds that are obligated for all eligible uses except for the surface Transportation projects and Title One projects by December 31 2026 for the latter category of uses the surface transportation and Title One projects recipients must expend expend slf ref funds by September 30th 2026 with that background we will now move to the discussion of the obligation IFR and again in the webinar chat and in the Q a we had the links to the IFR quick reference guide as well as the obligation IFR itself so moving on um to the next slide here last week treasury issued the obligation interim final rule we're using the initials IFR to refer to it so the obligation IFR and this was issued to address recipients questions regarding the definition of obligation and to provide related guidance and clarifications these are the many questions that many of you have submitted to us we heard request for clarification from many of you regarding the definition of obligation and treasures role so this obligation IFR provides Clarity in three areas first we do revise the definition of obligation second we do address the application of the obligation uh deadline to subrecipients and third we uh share information about how uh recipients can amend or replace contracts or sub Awards after the obligation deadline of December 31st 2024 I told you you're going to hear that date a lot so that that's another time that we use it but you're going to hear it many more times so these next two items are also important so first this obligation IFR does not alter the the eligible use categories including the revenue loss eligible use category second this obligation IFR does not alter the obligation or expenditure deadlines for the slrf program the deadlines we discussed on the previous slide remain in effect if your government has already expended your slf ref funds the obligation IFR does not impact your government if your government has already obligated all of your slf funds or your government has a plan to obligate the funds by the deadline this obligation IFR May provide helpful clarifications to you but your government may not need to take any action in response to this obligation IFR if your government has been seeking clarification on these questions there may be action required which will be discussed in the course of this presentation so once again and I want to thank you for your diligence and your attention to the slf program and for all the wonderful work you are doing to help your communities I'm going to now turn it over to my colleague K and caralis from our policy team that will walk you through each of the three areas that I have discussed Carrie an hey y'all good afternoon um as ver mentioned my name is Kian caralis I am on the slrf policy team um based here in Chicago um I'm going to take y'all through the three sections of the obligation IFR um we're going to go into a little more detail um but as um Vero and Laura mentioned also please reference the um content of the actual obligation IFR as well as the quick reference guide um so first we're going to dig into the the first section which includes the revision to the definition of obligation um for each clarification we're also going to provide some case studies to demonstrate how the clarifications might affect your work um as a reminder again please always check back with um the obligation IFR for additional details and you can continue to add your questions into the chat box um but before we jump in we actually want to provide a little bit of background um in the authorizing legislation for the slf RF program which are sections 602 and 603 of the Social Security Act uh provided that slf RF funds may only be used to cover costs incurred by December 31st 2024 in the 20122 final rule treasury implemented the statutory requirement by providing that a cost is considered incurred if a recipient has incurred an obligation for the cost by December 31st 2024 um treasury def defined obligation in the 2022 final rule as an order placed for property and services and entering into contract sub Awards and similar transactions that require payment this definition was based on the uniform guidance definition of financial obligations um treasury received a lot of inquiries regarding that definition of obligation in particular we heard from recipients that they expected some difficulty using slrf funds for expenses associated with the administrative legal requirements of the slrf program after the obligation deadline has passed for example um recipients had um had expressed some difficulties with providing payroll and benefits for personnel responsible for compliance and Reporting associated with the slf RF program and the expenses of maintaining records because often government budgeting practices and financial practices obligate Personnel expenses when the work is performed um because of that um the obligation IFR um revises the definition of obligation if we can go to the next slide um so as mentioned an obligation continues to mean an order placed for property and services an entry into contracts sub Awards and similar transactions that require payment the first part of this definition is unchanged however in the obligation IFR we've added a second part to this definition listen closely an obligation also means a cost to meet a requirement under federal law or regulation or provision of the slrf award terms and conditions to which the recipient becomes subject as a result of receiving or expending slf RF funds or put in another way when recipients incur costs related to the legal and administrative requirements of the slf RF award funds uh recipient is considered to have encourag an obligation by December 31st 2024 if a recipient is using slf RF funds for the requirements described in the definition so this would include expenditures related to reporting and compliance requirements single audit costs record retention and internal control requirements Property Standards Environmental Compliance requirements and civil rights and non-discrimination requirements all of those are also listed on your screen um also to mention that there's a little additional detail about each of these again included in the obligation IFR what this means is that recipients can meet the definition of obligation for these eligible costs without having to enter into a contract sub award or similar transaction that requires payment and can continue to use their slf F funds for these costs that would occur between January 1st 20125 and December 31st 2026 uh next slide so the obligation IFR includes guidance for reporting slrf funds used for these costs um again treasury will update the compliance and Reporting guidance prior to the April 2024 report period to describe how recipients will need to report these estimates in the project and expenditure report but generally um recipients will first um be required to determine the amount of slf ORF funds estimated to be used to cover such costs second recipients must document a reasonable justification for this estimate third recipients must report any amount to treasury by April 30th 2024 with an explanation of how the amount was determined and fourth recipients must report at award closeout the final amount expended for these costs which will be reconciled against the estimate and any unused funds will be returned to treasury uh next slide great in addition to revising the definition of obligation the obligation IFR states that treasury considered some recipients comments to revise the rule to Define cost incurred by reference to recipient appropriation budget or allocation processes and explains that this approach would not provide a standard that could be applied consistently across recipients and second there's an additional clarification associated with the definition of obligation um that states that to the extent that recipients have been covering such administrative and legal expenses under their indirect cost rate which might include a current negotiated indirect cost rate agreement established with their Federal cognizant agency or the Minimus rate of 10% of modified total direct cost pursuant to 2 CFR 200. 414 F the obligation clarifies that recipients can continue to do so essentially saying that recipients can continue to charge indirect costs throughout the per period of performance recipients should include indirect costs in their estimate of legal and administrative cost reported to treasury uh now we're going to go through some case studies to illustrate um what all of this means so in the first case study we have a recipient that has hired additional Finance contract and Reporting staff that are funded directly by slf RF to manage the compliance of slf funded projects the recipients established internal policies and procedures obligate personal costs when the work is performed the question is given the recipients established practice and policy regarding when Personnel costs are obligated can this recipient incur Personnel costs related to the administrative and other legal requirements such as managing the compliance of slf RF funded projects between January 1st 2025 and December 31st 2026 our response is yes the obligation IFR amends the definition of obligation to include include costs meaning slf RF reporting and compliance requirements um again additional information on that can be found in the obligation IFR in our next case study we have a recipient whose legislative body approved the proposed appropriation of all the recipients slf RF funds in 2022 her question is does this appropriation meet treasury's definition of obligation the response is no the obligation IFR states that treasur considered some recipients comments to revise the rule to Define cost incurred by reference to recipient appropriation budget or allocation processes and explains that this approach would not provide a standard that could be applied consistently across recipients in case study number three we have a recipient that is using slf RF funds to provide Mental Health Services to Residents that have been impacted by the pandemic recipient has hired eight full-time employees funded by slrf to implement the program which includes social workers to deliver Mental Health Services and case management the recipients established internal policies and procedures obligate Personnel costs when the work is performed and so their question is given the recipients establish practice and policy that obligates Personnel costs when the work is performed can this recipient incur these Personnel costs between January 1st 2025 and December 31st 2026 response is that um as was contemplated by the definition of obligation treasury recognizes that recipients May obligate funds through other means than contracts or sub rewards so for example in the case of personnel costs in these circumstances recipients must follow state or local law and their own established practices and policies regarding when they are considered to have incurred an obligation and how they document those obligations um recipients should again follow state or local law and their own established practices and policies and should not establish new policies or procedures specifically to address this requirement for slf RF funds that deviate from those existing established practices and policies so in this example the recipient's own internal policies and procedures would not allow the recipient to obligate these types of personnel cost Beyond 2024 in case study number four um we have a re ient that calculates indirect costs um after the end of the fiscal year based on their negotiated indirect cost rate agreement that's applied to eligible expenditures for that year this process cannot be completed until the recipients expenditures are final which might not be um for six months after the end of the fiscal year in June of 2025 the obligation of those costs incurred wouldn't occur until they are charged to the slf RF program and indirect costs cannot be charged until they are accurately calculated so for 2024 to 2026 this won't occur until after the December 31st 2024 obligation deadline can this recipient charge their indirect cost for the years after that deadline of 24 through 26 the response here is that obligation IFR does clarify that to the extent that recipients have been covering expenses of personnel and other related administrative expenses needed to comply with administrative and other legal requirements under the current indirect cost rate recipients may continue to do so so now we're going to move on to the second section of the obligation IFR um we had many recipients that asked whether the December 31st 2024 obligation deadline applies to subrecipients treasury is clarifying that subrecipients are not subject to this deadline the obligation deadline applies to the recipient of slf funds and a cost is considered to have been incurred once a recipient enters into a sub awward or a contract that obligates the recipient to cover that cost recipients and contractors do not need to take any additional steps to obligate funds after entering into the contract with the recipient in our case study um we have a recipient that has awarded a contract to a subrecipient to provide services for unhoused persons the contract was executed 2023 and ends on December 31st 2026 does the subrecipient need to take any action to meet the obligation deadline after executing the contract with the recipient the response is no the subrecipient does not need to take any additional action as the obligation IFR clarifies that subrecipients are not subject to the obligation deadline so our third and final section of the obligation IFR um is regarding the amendment and replacement of contracts that recipients asked how they may after the obligation deadline amend or replace contracts and sub Awards entered into prior to that date in general recipients cannot re obligate funds or obligate additional funds after the obligation deadline this would include changes to contracts made after the obligation deadline of December 31st 2024 to accommodate things like change orders however after the obligation deadline for a contract or sub award that was entered into prior to December 31st 2024 recipients are permitted to replace the contract or sub award if one of the three the following three situations occur first recipient terminates the contract or subaward because of the contractor or sub recipient's default the contractor or sub recipient goes out of business or the recipient determines that the contractor or subrecipient will not be able to perform under the contract or carry out the sub awward two the recipient and contractor or subrecipient mutually agree to terminate the contract or sub award for convenience and three the recipient terminates the contract or sub award for convenience if the contract or sub awward was not properly awarded for example if the contractor was not eligible to receive the contract there's clear evidence that the contract or sub award was improper and the recipient document the determination that it was not properly awarded and the original contract or sub awward was entered into by the recipient in good faith a contract is considered to be made in good faith if the parties follow the standard procurement or subar word practices and the contractor sub award was not entered into for the purpose of evading the December 31st 2024 obligation deadline as mentioned treasury will update the slrf compliance and Report ing Guidance with additional guidance for recipients to report any contract or subaward Replacements that occur after December 31st 2024 in case study number six we have a recipient that has awarded a contract for a capital expenditure in March of 2025 the contractor ceases business unexpectedly the project is only 50% completed the recipient wants to enter into a new contract with a different contractor to complete the pro project can this recipient enter into a new contract after the obligation deadline with a new contractor to complete this project uh treasury has clarifying that after December 31st 2024 recipients may replace a contract or sub award entered into prior to December 31st 2024 under certain circumstances which include contractor default the contractor sub reant goes out of business where the contract was not properly awarded again details were carded that clarification can be found in the obligation IFR in our final case study we have a recipient that has obligated all of its slf RF funds by December 31st 2024 in the recipient single audit in June 2025 the auditor identifies issues with the project to ensure slf RF funds are spent in compliance with all requirements the recipient moves the removes the project from its pool of slf funds as a result the recipient now has unobligated as the lever of funds and the recipient has identified a new use of funds that can be expended by December 31st 2026 however the recipient is not certain that the funds can be moved to the new project so the question is can the recipient re obligate funds to ensure all slf RF funds are utilized in compliance with all program regulations and requirements our response is that recipients cannot re obligate SLS FF funds to a new project after 2024 that does not meet the December 31st 2024 obligation deadline such as a new project that does not yet have an order place for property and services or a signed contract sub award and similar transaction that requires payment so we've gone over each of the three areas that the obligation IFR covers which includes the revision to the definition of obligation that allows recipients to incur costs related to the legal and administrative requirements of slf frf funds throughout the period of performance it also states that recipient appropriation budget or allocation processes would not provide a standard that could be applied consistently across recipients related to the definition of obligation and clarifies that recipients can continue to charge indirect cost rates to S slrf throughout the period of performance second the obligation IFR clarifies that the obligation deadline applies to the recipient of slf RF funds and subrecipients and contractors are not subject to the obligation deadline and finally the obligation IFR outlines when a recipient May amend or replace contracts and sub Awards after the obligation deadline so with that I'm going to turn it back to Laura who's going to take you through the public comment period thank you kianne um so now we'll um we will talk about the public comment period and how you can provide comments on the obligation IFR I'm going to give you an address so you may want to be ready to take notes if you're listening in on the phone so following the same process that treasury used when we launched the program in 2021 we've submitted the obligation IFR to the Federal Register for publication this approach affords you as recipients the opportunity to submit comments on the obligation IFR over a 30-day period for those of you who can see the slides the process for submitting your comments is displayed on the screen and you can follow along as we review them for those of you on the phone you will find instructions for how to submit comments in the obligation IFR itself and on our website the IFR was submitted for publication on November 9th 2023 and will become effective when published that will also be the beginning of the comment period so there are two methods to submit your comments the first is electronically through the federal eem portal regulations.gov this method will be available once the obligation IFR is published if you would like to mail your comments I will give you an address to where to send your comments office of recovery programs Department of the treasury 1500 Pennsylvania Avenue Northwest Washington DC 20220 I'll repeat the address again if you're listening in Office of Recovery programs Department of the treasury 1500 Pennsylvania Avenue Northwest Washington DC 20220 now this next piece is important all comments should be captioned Corona virus state and local fiscal recovery funds obligation interim final rule comment I'll say that one more time all comments should be captioned Corona virus state and local fiscal recovery funds obligation interim final rule comment with your comments please also include your name your organization affiliation your address your email address and your telephone number so in general comments received will be posted on regulations.gov without change including ining any business or personal information provided comments received including attachments and other supporting materials will be part of the public record and subject to public disclosure please do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure so we move to the next slide that concludes the presentation portion of our meeting today so as a reminder the webinar was recorded um to share that the slides including the case studies are currently posted on Treasury site and we can add a link in the chat so that you can find it um the webinar recording will be uploaded to the site as well thank you again for joining us today um about the obligation IFR for the SL program now I'll turn over to um your questions