Treasury’s Final Rule Is Here; Here’s What You Should Know About Using ARPA Funds to Address Vacancy

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The long-awaited Final Rule on the American Rescue Plan Act (ARPA) State and Local Fiscal Recovery Fund (SLFRF) was released by the U.S. Treasury Department on Thursday, January 6, 2022. It includes significant wins for communities hoping to address vacancy and abandonment in the wake of the pandemic. Since this $350 billion recovery package was passed in March 2021, Community Progress has provided critical resources and technical assistance to our network, partners, local governments, and land bank leaders about this transformative infusion of flexible federal funding.

The ARPA SLFRF reaches every state, Tribal, territorial, county, and municipal government. While many recipients have moved ahead with projects and programs for this funding, the uses and eligibility criteria in the statute and the Interim Final Rule left some communities wary of programming their allocations until the release of the Final Rule.

In this post we share our initial analysis of the Final Rule relevant to the communities we most often serve.

Advocacy Matters

We wanted to thank the Community Progress network for the overwhelming amount of public advocacy to Treasury around issues related to vacant, abandoned, and deteriorated (VAD) properties. Treasury solicited public feedback on the Interim Final Rule in May 2021. Community Progress and dozens of our engaged stakeholders made our voices heard in the public comment process, calling on Treasury to explicitly authorize activities that address VAD properties as eligible uses of ARPA SLFRF. By and large, Treasury adopted the recommendations proposed in Community Progress’s public comment letter, as well as those submitted by many land bank leaders, county treasurers, and local government leaders from around the country.

The Final Rule is a huge win for communities working to address VAD properties, particularly those that have been disproportionately impacted by health and economic consequences of the pandemic, as so many of the communities we serve are.  We must acknowledge and celebrate when our collective advocacy leads to real change, and this is such a moment. We are grateful to all those who reached out to Treasury and submitted public comment letters explaining why addressing vacancy makes communities stronger, healthier, and more equitable.

Activities Addressing Vacancy and Abandonment

The Final Rule explicitly authorizes services to address vacant or abandoned properties as eligible ARPA SLFRF expenditures in areas disproportionately impacted by the COVID-19 health and economic crisis:

As noted throughout the final rule, the pandemic underscored the importance of safe, affordable housing and healthy neighborhood environments to public health and economic outcomes. Treasury agrees with commenters that high rates of vacant or abandoned properties in a neighborhood may exacerbate public health disparities, for example through environmental contaminants that contribute to poor health outcomes or by contributing to higher rates of crime. As such, certain services for vacant or abandoned properties are eligible to address the public health and negative economic impacts of the pandemic on disproportionately impacted households or communities. Eligible activities include:

    • Rehabilitation, renovation, maintenance, or costs to secure vacant or abandoned properties to reduce their negative impact
    • Costs associated with acquiring and securing legal title of vacant or abandoned properties and other costs to position the property for current or future productive use
    • Removal and remediation of environmental contaminants or hazards from vacant or abandoned properties, when conducted in compliance with applicable environmental laws or regulations
    • Demolition or deconstruction of vacant or abandoned buildings (including residential, commercial, or industrial buildings) paired with greening or other lot improvement as part of a strategy for neighborhood revitalization
    • Greening or cleanup of vacant lots, as well as other efforts to make vacant lots safer for the surrounding community
    • Conversion of vacant or abandoned properties to affordable housing
    • Inspection fees and other administrative costs incurred to ensure compliance with applicable environmental laws and regulations for demolition, greening, or other remediation activities

[Final Rule text released January 6, 2022, pp. 133-134. Emphasis added.]

The Final Rule goes into detailed analysis of the positive health and economic benefits of greening vacant spaces and demolishing or deconstructing unsafe structures, while cautioning that the above activities should be used to serve existing residents and businesses:

…[D]emolition and greening (or other structure or lot remediation) of vacant or abandoned properties, including residential, commercial, or industrial buildings, is an eligible use of funds. Treasury encourages recipients to undertake these activities as part of a strategy for neighborhood revitalization and to consider how the cleared property will be used to benefit the disproportionately impacted community. Activities under this eligible use should benefit current residents and businesses, who experienced the pandemic’s impact on the community.

Treasury encourages recipients to be aware of potential impacts of demolition of vacant or abandoned residential properties. Demolition activities that exacerbate the pandemic’s impact on housing insecurity or lack of affordable housing are not eligible uses of funds. This risk is generally more acute in jurisdictions with low or reasonable vacancy rates and less acute in jurisdictions with high or hyper-vacancy. [*]

[Final Rule text released January 6, 2022, pp. 134-135.]

[* Treasury cites to page 12 of Community Progress Senior Fellow Alan Mallach’s “The Empty House Next Door” for guidance on vacancy rates and methodology to determine high or hyper-vacancy.]

Treasury took great care to balance the need for demolition to strengthen some communities and housing markets and stabilize neighborhoods, with guardrails to prevent these activities from displacing existing residents and worsening housing insecurity. For example, Treasury will presume that demolition resulting in a loss of occupiable housing units for low- and moderate-income individuals in areas where the need for LMI housing exceeds the supply will be ineligible activities. [Final Rule, p. 135]

We encourage you to closely examine the Vacant and Abandoned Property section, pp. 133-137 of the Final Rule, and to seek independent legal advice, to better understand these eligible activities, as well as the required compliance with other federal laws and regulations relating to the acquisition, demolition, and redevelopment of real property using federal funds.

Expansion of “Disproportionately Impacted Communities”

It is important to understand that the above activities related to addressing VAD properties are explicitly authorized in “disproportionately impacted households or communities.” The Interim Final Rule released last year used low-income qualified census tracts (QCTs) and Tribal governments (and the households living in them) as proxies for disproportionately impacted communities, but Treasury has now clarified and expanded that definition in some important ways.

Of greatest consequence to our broad audience of community stakeholders are the extensive clarifications Treasury makes throughout the Final Rule that recipients may designate additional geographies, populations, and households as “disproportionately impacted classes” beyond QCTs, Tribal lands, and territories. Treasury has offered extensive standards which recipients should review in making additional determinations, including the following:

Recipients may identify classes of households, communities, small businesses, nonprofits, or populations that have experienced a disproportionate impact based on academic research or government research publications, through analysis of their own data, or through analysis of other existing data sources. To augment their analysis, or when quantitative data is not readily available, recipients may also consider qualitative research and sources like resident interviews or feedback from relevant state and local agencies, such as public health departments or social services departments. In both cases, recipients should consider the quality of the research, data, and applicability of analysis to their determination.

[Final Rule text released January 6, 2022, p. 45.]

Additionally, Treasury has added all U.S. territories and their populations as presumptively within the definition of disproportionately impacted communities. [Final Rule, p. 37] This is important to our partners working to address vacancy in Puerto Rico and other U.S. territories.

The Final Rule further clarifies that low-income households should be defined as at or below 40 percent of Area Median (AMI) or 185% of Federal Poverty Guidelines (FPG), and that moderate-income households should be defined as at or below 65% of AMI or 300% of FPG, for purposes of determining presumptive eligibility as “disproportionately impacted” or “impacted” populations, respectively. [Final Rule, pp. 30-35.] Treasury has also released a useful spreadsheet to help recipients determine low- and moderate- income household thresholds in their counties and states.

Distinguishing Subrecipients Versus Beneficiaries

The Final Rule clarifies the difference between a beneficiary of ARPA SLFRF funds, and a subrecipient designated by a city, county, or state to carry out eligible activities and serve beneficiaries. This clarification reinforces that private nonprofit organizations may be designated by their county, state, or municipal government to receive funds from a SLFRF award and “carry out a program or project on behalf of the recipient with the recipient’s Federal award funding.” [Final Rule, pp. 208-211.]

While the recipient unit of government remains responsible for oversight and compliance to Treasury for these funds, these clarifications further confirm that land banks, nonprofit community development and service organizations, and others may provide eligible services and carry out eligible projects, including the newly enumerated activities to address VAD properties in disproportionately impacted communities.

Delinquent Property Tax Relief

The Interim Final Rule set forth a non-exhaustive list of financial support to pandemic-impacted households to cover costs to keep people stably housed, including rent, mortgage, and utility assistance. The Final Rule clarifies that direct payments to cover delinquent property taxes, “to prevent tax foreclosures on homes, was permissible under the interim final rule and continues to be so under the final rule.” [Final Rule, p. 83]

Given the relationship between property tax foreclosure, displacement, and vacancy, ARPA SLFRF recipients that deploy funds to assist households in paying their delinquent property taxes will protect vulnerable homeowners struggling to pay bills, provide their local governments with much-needed property tax revenue, and stabilize neighborhoods.

Improvements that Make Neighborhoods Safer and Healthier

Treasury was persuaded by numerous public commenters who made the case for why neighborhood improvements to add green space, make communities more walkable and safer, and expand access to healthy foods should be presumptively eligible under ARPA SLFRF. In disproportionately impacted communities, Treasury will presume that certain activities that support safer and healthier neighborhoods will be eligible, including “parks, green spaces, recreational facilities, sidewalks, pedestrian safety features like crosswalks, projects that increase access to healthy foods, streetlights, neighborhood cleanup, and other projects to revitalize public spaces.” [Final Rule, p. 132] However, the Final Rule cautions that general street infrastructure projects that predominantly involve street construction or repair to benefit vehicular traffic would be ineligible.

Expanded Eligibility for Affordable Housing Development

The Final Rule makes a substantial change from the Interim Final Rule in determining that a number of presumptively eligible activities, including the development of affordable housing, may be presumed eligible in all areas and for all households impacted by the pandemic, not solely in disproportionately impacted areas.

…Treasury has determined that supportive housing or other programs or services to improve access to stable, affordable housing among individuals who are homeless, and the development of affordable housing to increase supply of affordable and high-quality living units are responsive to the needs of impacted populations, not only disproportionately impacted populations. This final rule reflects this clarification and builds on the objectives stated in the interim final rule to improve access to stable, affordable housing, including through interventions that increase the supply of affordable and high-quality living units, improve housing security, and support durable and sustainable homeownership.

[Final Rule text released January 6, 2022, p. 103. Emphasis added.]

Additionally, Treasury encourages recipients to use SLFRF allocations to “design a wide variety of affordable housing interventions, including production, rehabilitation, and preservation of affordable rental housing and, in some cases, affordable homeownership units.” [p. 107] For ease of administration, Treasury also clarifies that affordable housing projects that would be eligible for federal funding under the following federal assistance programs will be presumptively eligible uses: the National Housing Trust Fund (HTF), the Home Investment Partnerships Program (HOME), as well as projects provided by a Tribal government if they would be eligible for funding under the Indian Housing Block Grant program, the Indian Community Development Block Grant program, or the Bureau of Indian Affairs Housing Improvement Program. [Final Rule, pp. 106-107]

The Final Rule also enumerates activities that support sustainable and durable homeownership, such as down payment assistance programs, contributions to mortgage reserve accounts, and any other Community Development Block Grant eligible homeowner assistance activities, as eligible. [Final Rule, p. 107]

Certain Grants Will Not Be Deemed “Expended” When Made

A number of our partners and land bank leaders sought clarification from Treasury around the timetable for the expenditure of certain funds, specifically with respect to investments into a revolving loan fund, an economic development corporation, a land bank, or a similar facility, hoping that Treasury would deem such funds as “expended” at the time of the grant. 

As set forth in the Interim Final Rule, all ARPA SLFRF allocations must be obligated by December 31, 2024, but must be expended by December 31, 2026, in recognition of the reality that certain projects may take longer to complete. The Final Rule declines to deem grants expended at the time the grant is made, and reinforces the earlier guidance provided by Treasury for repayment of loans with maturities beyond 2026.

Conclusion

The above sections are merely highlights from the 437-page Final Rule that were most responsive to questions from our network. We urge local policymakers deciding on ARPA SLFRF recovery plans and the community leaders advocating for projects and programs to examine the Final Rule closely, and to seek independent legal counsel for any interpretations of it, the Interim Final Rule, or any guidance provided by Treasury.

We also encourage our stakeholders to bookmark the Treasury landing page for the ARPA SLFRF and to visit it often. In addition to the Final Rule, it contains other useful reference documents, including an Overview of the Final Rule document that may be helpful to review. Treasury may also continue to update its Frequently Asked Questions and Compliance and Reporting guidance, as it has done since the issuance of the Interim Final Rule in May 2021, so be on the lookout for more information.

If you have stories to share about how your community is using its ARPA SLFRF allocations to recover from the pandemic and build stronger, healthier neighborhoods, or if you have any questions, please reach out to Director of Policy and Research Rob Finn at rfinn@communityprogress.org.

Additional Resources

If your community is exploring ways ARPA could support equitable revitalization, check out these additional resources: