Agenda - Council Work Session - 03/08/2022

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4430 Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations government services to the extent of constitutes a negative economic impact public health and negative economic revenue loSS.366 of the pandemic. impacts of the pandemic,nor do they As explained in greater detail below, Some commenters argued that the provide a government service. Treasury,in the final rule,has retained specific impacts of the pandemic on the Second,payments from the SLFRF are these restrictions and is clarifying that travel,tourism,and hospitality sector intended to be used prospectively(see these restrictions on the use of SLFRF had affected their ability to meet debt section Timeline for Use of SLFRF funds apply to all eligible use service costs. For example, some Funds). The interim final rule provided categories. commenters explained that specific tax that funds may be used for costs Public Comments streams (e.g.,hotel room taxes) or incurred beginning on March 3, 2021, revenue sources (e.g.,hospitality which Treasury has maintained in the Several commenters suggested that generally)are tied to specific debt final rule. Use of funds for debt service debt service and reserve replenishment instruments and that these revenue on indebtedness issued prior to March should qualify as the provision of a sources had declined during the public 3, 2021 necessarily entails using funds government service and be an eligible health emergency;commenters argued for costs incurred during prior time use of funds,up to the amount of that this constitutes a negative economic periods,rather than the present revenue loss due to the pandemic. Many impact that SLFRF funds should be response to the public health emergency commenters indicated that they had permitted to address. and its negative economic impacts or to been forced to borrow money or dip into Finally, some commenters questioned provide government services. reserve funds to continue providing why servicing debt incurred after March Third, SLFRF funds provide government services during the public 39 2021 for an otherwise eligible project recipients with substantial latitude to health emergency and that using SLFRF (e.g., a broadband infrastructure project) use funds to support the diverse needs funds for resulting debt service or would not be an eligible use of funds. in their communities.With SLFRF reserve replenishment costs should On the other hand,many commenters resources available,recipients have less therefore be considered a government expressed support for the interim final need to incur debt for otherwise-eligible service. rule's prohibition on use of funds for SLFRF uses. Many comments from Tribal debt service and reserve replenishment. Finally,given the strong performance governments noted that their These commenters largely argued that of overall revenues and low municipal governments depend on revenue from SLFRF funds should be used to provide bond yields, state and local Tribal enterprises to pay government current services to communities in governments generally do not face high debts and provide services.The response to the public health emergency levels of fiscal stress. Limits on debt comments suggest that it should be an and that use of funds for debt service or service or replenishment of reserves eligible use of SLFRF to replace lost reserve replenishment represented, would not have a substantial impact on revenue from these enterprises that respectively,payment for past costs or recipients'ability to provide services. would typically be used to pay debt savings for potential future costs. In The ratio of state and local debt-to-GDP, service costs. Other commenters argued addition to the prohibition on debt which spiked briefly during the that paying the interest or principal on service and reserve replenishment, some pandemic,has recovered to its pre- debt should in some cases be considered commentors suggested that the final rule pandemic level and remains well below provision of government services and an should also prevent funds from being levels seen during the Great eligible use of funds as such used for state UI trust fund Recession.367 expenditures facilitate the provision of replenishment or for paying off debt government services. owed through UI trust funds. One 2. Settlements and Judgments Some commenters argued that debt commenter argued that Treasury should The interim final rule also provided costs or reserve drawdowns during the further restrict recipient governments, that satisfaction of any obligation arising public health emergency constitute a for example by preventing recipients under or pursuant to a settlement negative economic impact to recipient from making cuts to an allowable budget agreement,judgment, consent decree, or governments,and thus debt service or item,filling the budget gap with SLFRF judicially confirmed debt restructuring reserve replenishment should be an funds,and then using the savings from in a judicial,administrative,or eligible use to respond to that negative the initial cut for debt service or reserve regulatory proceeding would not be an economic impact. For example, several replenishment. eligible use of funds to respond to the commenters suggested that there should public health and negative economic be a specific carve-out allowing the use Treasury Response impacts of the pandemic or as a of SLFRF funds for debt service on debt The final rule maintains the government service provided under the incurred for government services after restriction on the use of funds for debt revenue loss eligible use category. January 27, 2020,the start of the public service or reserve replenishment for the However,if the judgment or settlement health emergency, or short-term debt reasons described below and clarifies requires the recipient to provide incurred for this purpose. Others that this restriction applies to all eligible services that are otherwise eligible suggested that recipient governments use categories. under an SLFRF eligible use category, should be able to service debt,up to the First, debt service and reserve specifically if the settlement or amount of debt incurred in direct replenishment costs do not constitute judgment requires the recipient to response to the pandemic.These the provision of services to constituents. provide services to respond to the commenters generally reasoned that the As noted in the interim final rule, COVID-19 public health emergency or cost of responding to the public health financing expenses—such as issuance of its negative economic impacts or to emergency and its negative economic debt or payment of debt service—do not provide government services,then those impacts prior to APRA's passage provide services or aid to citizens. costs are eligible uses of SLFRF funds. Similarly, contributions to rainy day 366"In addition,replenishing financial reserves funds and similar financial reserves 367 Table Z.1 of the Financial Accounts of the (e.g.,rainy day or other reserve funds)would not United States,Board of Governors of the Federal be considered provision of a government service, constitute savings for future spending Reserve System,and Table 1.1.5 of National Income since such expenses do not directly relate to the needs.AS SUCK,these expenses do not and Product Accounts,Bureau of Economic provision of government services." respond to the current and ongoing Analysis.