Sneak Preview: Treasury Clarifies SLFRF Program ‘Obligation’
(The following was excerpted from a recent Thompson Grants Compliance Expert article.) Governmental recipients of Coronavirus State and Local Fiscal Recovery Funds (SLFRF) from the Department of the Treasury are being provided a clearer definition of what the agency deems an “obligation” under the program, as well as how to manage contract/subaward amendments after the obligation deadline. Treasury issued an interim final rule Nov. 20 updating the definition, which currently is found under agency regulations at 31 C.F.R. §35.3.
The SLFRF program, created under the American Rescue Plan Act (Pub. L. 117-2) provides support to state, local, territorial and tribal governments to mitigate the fiscal effects of the COVID-19 public health emergency. In January 2022, Treasury issued a final rule implementing the SLFRF program, and again published an additional interim final rule in August, which became effective Sept. 20, to implement the changes made to the program by the 2023 Congressional Appropriations Act (Pub. L. 117-328) (see “Treasury Issues 2023 SLFRF Interim Final Rule,” October 2023).
Program statutes require that SLFRF dollars may only be used to cover costs incurred by Dec. 31, 2024, but the term “cost incurred” did not have a precise meaning, according to Treasury. It could have been interpreted to mean that Dec. 31, 2024, was the end of the period of performance for SLFRF awards. “However, Congress expressly provided for water, sewer and broadband projects as eligible uses,” Treasury explains. “If Treasury had set the end of [the] period of performance as Dec. 31, 2024, such that recipients would have had to not only obligate funds but complete expenditures by that date, it would have been very difficult for recipients to engage in significant water, sewer and broadband projects. Instead, Treasury implemented the statutory requirement by providing that a cost is considered incurred by Dec. 31, 2024, if a recipient has incurred an obligation with respect to the cost by Dec. 31, 2024.”
Citing the uniform guidance definition for “financial obligations” (§200.1) as its basis, Treasury has defined “obligation” as “an order placed for property and services and entering into contracts, subawards and similar transactions that require payment.” Treasury then set the period of performance as ending on Dec. 31, 2026, which serves as the deadline for expenditures.
In response to continued recipient concerns and questions about the definition of “obligation,” Treasury’s new interim final rule revises the definition of “obligation” and provides related guidance to give additional flexibility and clarity to recipients to support their use of SLFRF funds.
Existing SLFRF obligation or expenditure deadlines are not affected by the new interim final rule — recipients still must obligate SLFRF funds by Dec. 31, 2024, and expend obligated funds by Dec. 31, 2026 (with the exception of Surface Transportation projects and under Title I eligible use categories, for which funds must be expended by Sept. 30, 2026). In addition, the SLFRF eligible use categories are not changing.
(The full version of this story has now been made available to all for a limited time here.)
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