PART 35—PANDEMIC RELIEF PROGRAMS Authority: 42 U.S.C. 802(f); 42 U.S.C. 803(f); 31 U.S.C. 321; 12 U.S.C. 5701-5710; Division N, Title V, Subtitle B, Pub. L. 116-260, 134 Stat. 1182 (12 U.S.C. 4703a); Section 104A, Pub. L. 103-325, 108 Stat. 2160, as amended (12 U.S.C. 4701 et seq. et seq. Source: 86 FR 13455, Mar. 9, 2021, unless otherwise noted. Subpart A—Coronavirus State and Local Fiscal Recovery Funds Authority: 42 U.S.C. 802(f); 42 U.S.C. 803(f); section 102(c) of Division LL of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328). Source: 88 FR 65026, Sept. 20, 2023, unless otherwise noted. § 35.1 Purpose. This part implements sections 602 and 603 of the Social Security Act, as added by section 9901 of the American Rescue Plan Act (Subtitle M of Title IX of Pub. L. 117-2) and amended by section 102 of Division LL of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328). § 35.2 Applicability. This part applies to states, territories, Tribal governments, metropolitan cities, nonentitlement units of local government, counties, and units of general local government that accept a payment or transfer of funds made under section 602 or 603 of the Social Security Act. § 35.3 Definitions. Baseline Capital expenditures County Covered benefits Covered change Covered period (1) Begins on March 3, 2021; and (2) Ends on the last day of the fiscal year of such State or territory in which all funds received by the State or territory from a payment made under section 602 or 603 of the Social Security Act have been expended or returned to, or recovered by, the Secretary. COVID-19 COVID-19 public health emergency et seq. Delivery sequence Deposit Disaster loss Eligible employer Eligible workers (1) With respect to a recipient that is a metropolitan city, nonentitlement unit of local government, or county, workers in any additional non-public sectors as each chief executive officer of such recipient may designate as critical to protect the health and well-being of the residents of their metropolitan city, nonentitlement unit of local government, or county; or (2) With respect to a State, territory, or Tribal government, workers in any additional non-public sectors as each Governor of a State or territory, or each Tribal government, may designate as critical to protect the health and well-being of the residents of their State, territory, or Tribal government. Emergency relief Essential work (1) Is not performed while teleworking from a residence; and (2) Involves: (i) Regular in-person interactions with patients, the public, or coworkers of the individual that is performing the work; or (ii) Regular physical handling of items that were handled by, or are to be handled by patients, the public, or coworkers of the individual that is performing the work. Funds General revenue Infrastructure Investment and Jobs Act Intergovernmental transfers Low-income household (1) Income at or below 185 percent of the Federal Poverty Guidelines for the size of its household based on the poverty guidelines published most recently by the Department of Health and Human Services; or (2) Income at or below 40 percent of the Area Median Income for its county and size of household based on data published most recently by the Department of Housing and Urban Development. Micro-business Moderate-income household (1) Income at or below 300 percent of the Federal Poverty Guidelines for the size of its household based on poverty guidelines published most recently by the Department of Health and Human Services; or (2) Income at or below 65 percent of the Area Median Income for its county and size of household based on data published most recently by the Department of Housing and Urban Development. Metropolitan city Natural disaster Net reduction in total spending Nonentitlement unit of local government Nonprofit Obligation Operating expenses Pension fund Period of performance Premium pay (1) With regard to work that the eligible worker previously performed, pay and remuneration equal to the sum of all wages and remuneration previously received plus up to $13 per hour with no reduction, substitution, offset, or other diminishment of the eligible worker's previous, current, or prospective wages or remuneration; or (2) With regard to work that the eligible worker continues to perform, pay of up to $13 per hour that is in addition to the eligible worker's regular rate of wages or remuneration, with no reduction, substitution, offset, or other diminishment of the worker's current and prospective wages or remuneration. Qualified census tract Recipient Reporting year Secretary State Small business (1) Has no more than 500 employees or, if applicable, the size standard in number of employees established by the Administrator of the Small Business Administration for the industry in which the business concern or organization operates, and (2) Is a small business concern as defined in section 3 of the Small Business Act (15 U.S.C. 632). Surface Transportation project (1) A project eligible under 23 U.S.C. 117; (2) A project eligible under 23 U.S.C. 119; (3) A project eligible under 23 U.S.C. 124, as added by the Infrastructure Investment and Jobs Act; (4) A project eligible under 23 U.S.C. 133; (5) An activity to carry out 23 U.S.C. 134; (6) A project eligible under 23 U.S.C. 148; (7) A project eligible under 23 U.S.C. 149; (8) A project eligible under 23 U.S.C. 151(f), as added by the Infrastructure Investment and Jobs Act; (9) A project eligible under 23 U.S.C. 165; (10) A project eligible under 23 U.S.C. 167; (11) A project eligible under 23 U.S.C. 173, as added by the Infrastructure Investment and Jobs Act; (12) A project eligible under 23 U.S.C. 175, as added by the Infrastructure Investment and Jobs Act; (13) A project eligible under 23 U.S.C. 176, as added by the Infrastructure Investment and Jobs Act; (14) A project eligible under 23 U.S.C. 202; (15) A project eligible under 23 U.S.C. 203; (16) A project eligible under 23 U.S.C. 204; (17) A project eligible under the program for national infrastructure investments commonly known as the “Rebuilding American Infrastructure with Sustainability and Equity” grant program; (18) A project eligible for credit assistance under the Transportation Infrastructure Finance and Innovation Act program under 23 U.S.C. chapter 6; (19) A project that furthers the completion of a designated route of the Appalachian Development Highway System under 40 U.S.C. 14501; (20) A project eligible under 49 U.S.C. 5307; (21) A project eligible under 49 U.S.C. 5309; (22) A project eligible under 49 U.S.C. 5311; (23) A project eligible under 49 U.S.C. 5337; (24) A project eligible under 49 U.S.C. 5339; (25) A project eligible under 49 U.S.C. 6703, as added by the Infrastructure Investment and Jobs Act; (26) A project eligible under the bridge replacement, rehabilitation, preservation, protection, and construction program under paragraph (1) under the heading 'HIGHWAY INFRASTRUCTURE PROGRAM' under the heading 'FEDERAL HIGHWAY ADMINISTRATION' under the heading 'DEPARTMENT OF TRANSPORTATION' under title VIII of division J of the Infrastructure Investment and Jobs Act; and (27) A project eligible under 49 U.S.C. 6701 for the purpose set forth in § 35.6(h)(1)(i)(C). Tax revenue Territory Title I eligible schools Title I project Tribal enterprise (1) That is wholly owned by one or more Tribal governments, or by a corporation that is wholly owned by one or more Tribal governments; or (2) That is owned in part by one or more Tribal governments, or by a corporation that is wholly owned by one or more Tribal governments, if all other owners are either United States citizens or small business concerns, as these terms are used and consistent with the definitions in 15 U.S.C. 657a(b)(2)(D). Tribal government Unemployment rate Unemployment trust fund Unit of general local government [88 FR 65026, Sept. 20, 2023, as amended at 88 FR 80589, Nov. 20, 2023] § 35.4 Reservation of authority, reporting. (a) Reservation of authority. (b) Extensions or accelerations of timing. (c) Reporting and requests for other information. § 35.5 Use of funds. (a) In general. (b) Costs incurred. (c) Return of funds. [88 FR 65026, Sept. 20, 2023, as amended at 88 FR 80589, Nov. 20, 2023] § 35.6 Eligible uses. (a) In general. (b) Responding to the public health emergency or its negative economic impacts. (1) Identifying eligible responses to the public health emergency or its negative economic impacts. (i) A program, service, or capital expenditure is eligible under this paragraph (b)(1) if a recipient identifies a harm or impact to a beneficiary or class of beneficiaries caused or exacerbated by the public health emergency or its negative economic impacts and the program, service, or capital expenditure responds to such harm. (ii) A program, service, or capital expenditure responds to a harm or impact experienced by an identified beneficiary or class of beneficiaries if it is reasonably designed to benefit the beneficiary or class of beneficiaries that experienced the harm or impact and is related and reasonably proportional to the extent and type of harm or impact experienced. (2) Identified harms: presumptions of impacted and disproportionately impacted beneficiaries. (i) Households or populations that experienced unemployment; experienced increased food or housing insecurity; qualify for the Children's Health Insurance Program (42 U.S.C. 1397aa et seq. et seq. et seq. et seq. (ii) The general public is presumed to be impacted by the public health emergency for the purposes of providing the uses set forth in paragraphs (b)(3)(i)(A) and (b)(3)(i)(C) of this section; and (iii) The following households, communities, small businesses, and nonprofit organizations are presumed to be disproportionately impacted by the public health emergency or its negative economic impacts: (A) Households and populations residing in a qualified census tract; households and populations receiving services provided by Tribal governments; households and populations residing in the territories; households and populations receiving services provided by territorial governments; low-income households and populations; households that qualify for Temporary Assistance for Needy Families (42 U.S.C. 601 et seq. et seq. et seq. et seq. et seq. et seq. et seq. (B) Small businesses operating in a qualified census tract, operated by Tribal governments or on Tribal lands, or operating in the territories; and (C) Nonprofit organizations operating in a qualified census tract, operated by Tribal governments or on Tribal lands, or operating in the territories. (3) Enumerated eligible uses: responses presumed reasonably proportional. (i) Responding to the public health impacts of the public health emergency for purposes including: (A) COVID-19 mitigation and prevention in a manner that is consistent with recommendations and guidance from the Centers for Disease Control and Prevention, including vaccination programs and incentives; testing programs; contact tracing; isolation and quarantine; mitigation and prevention practices in congregate settings; acquisition and distribution of medical equipment for prevention and treatment of COVID-19, including personal protective equipment; COVID-19 prevention and treatment expenses for public hospitals or health care facilities, including temporary medical facilities; establishing or enhancing public health data systems; installation and improvement of ventilation systems in congregate settings, health facilities, or other public facilities; and assistance to small businesses, nonprofits, or impacted industries to implement mitigation measures; (B) Medical expenses related to testing and treating COVID-19 that are provided in a manner consistent with recommendations and guidance from the Centers for Disease Control and Prevention, including emergency medical response expenses, treatment of long-term symptoms or effects of COVID-19, and costs to medical providers or to individuals for testing or treating COVID-19; (C) Behavioral health care, including prevention, treatment, emergency or first-responder programs, harm reduction, supports for long-term recovery, and behavioral health facilities and equipment; and (D) Preventing and responding to increased violence resulting from the public health emergency, including community violence intervention programs, or responding to increased gun violence resulting from the public health emergency, including payroll and covered benefits associated with community policing strategies; enforcement efforts to reduce gun violence; and investing in technology and equipment; (ii) Responding to the negative economic impacts of the public health emergency for purposes including: (A) Assistance to households and individuals, including: (1) (2) (3) (4) (5) (6) (7) (8) (9) 1 8 (10) (i) (ii) (11) (i) (ii) (iii) (iv) (v) (vi) (B) Assistance to small businesses, including: ( 1 ( 2 (C) Assistance to nonprofit organizations including programs, services, or capital expenditures, including loans or grants to mitigate financial hardship such as declines in revenues or increased costs, or technical assistance; (D) Assistance to tourism, travel, hospitality, and other impacted industries for programs, services, or capital expenditures, including support for payroll costs and covered benefits for employees, compensating returning employees, support for operations and maintenance of existing equipment and facilities, and technical assistance; and (E) Expenses to support public sector capacity and workforce, including: (1) (2) (i) (ii) (3) (4) (4) Capital expenditures. (i) Describe the harm or need to be addressed; (ii) Explain why a capital expenditure is appropriate; and (iii) Compare the proposed capital expenditure to at least two alternative capital expenditures and demonstrate why the proposed capital expenditure is superior. Table 1 to Paragraph ( b If a project has total expected and the use is enumerated in (b)(3), then and the use is not enumerated in (b)(3), then Less than $1 million No Written Justification required No Written Justification required. Greater than or equal to $1 million, but less than $10 million Written Justification required but recipients are not required to submit as part of regular reporting to Treasury Written Justification required and recipients must submit as part of regular reporting to Treasury. $10 million or more Written Justification required and recipients must submit as part of regular reporting to Treasury (c) Providing premium pay to eligible workers. (1) The eligible worker's total wages and remuneration, including the premium pay, is less than or equal to 150 percent of the greater of such eligible worker's residing State's or county's average annual wage for all occupations as defined by the Bureau of Labor Statistics' Occupational Employment and Wage Statistics; (2) The eligible worker is not exempt from the Fair Labor Standards Act overtime provisions (29 U.S.C. 207); or (3) The recipient has submitted to the Secretary a written justification that explains how providing premium pay to the eligible worker is responsive to the eligible worker performing essential work during the COVID-19 public health emergency (such as a description of the eligible workers' duties, health, or financial risks faced due to COVID-19, and why the recipient determined that the premium pay was responsive despite the worker's higher income). (d) Providing government services. (1) $10,000,000; or (2) the amount of the reduction in the recipient's general revenue due to the COVID-19 public health emergency, which equals the sum of the reduction in revenue, calculated as of each date identified in paragraph (d)(2)(i) of this section and according to the formula in paragraph (d)(2)(ii) of this section: (i) A recipient must make a one-time election to calculate the reduction in its general revenue using information as of either: (A) December 31, 2020, December 31, 2021, December 31, 2022, and December 31, 2023; or (B) The last day of each of the recipient's fiscal years ending in 2020, 2021, 2022, and 2023. (ii) A reduction in a recipient's general revenue for each date identified in paragraph (d)(2)(i) equals: Max {[Base Year Revenue* Growth Adjustment n t /12)]−Actual General Revenue; Where: (A) Base Year Revenue is the recipient's general revenue for the most recent full fiscal year prior to the COVID-19 public health emergency; (B) Growth Adjustment is equal to the greater of 5.2 percent (or 0.052) and the recipient's average annual revenue growth over the three full fiscal years prior to the COVID-19 public health emergency; (C) n equals the number of months elapsed from the end of the base year to the calculation date; (D) Subscript t denotes the specific calculation date; and (E) Actual General Revenue is a recipient's actual general revenue collected during the 12-month period ending on each calculation date identified in paragraph (d)(2)(i) of this section, except: ( 1 ( 2 ( 3 ( i ( ii ( 4 (e) Making necessary investments in water, sewer, and broadband infrastructure. (1) Water and sewer investments Clean Water State Revolving Fund projects. (ii) Additional stormwater projects. (iii) Drinking Water State Revolving Fund projects. (A) The recipient is not required to comply with the limitation under 40 CFR 35.3520(c)(2) to acquisitions of land from willing sellers or the prohibition under 40 CFR 35.3520(e)(6) on uses of funds for certain Tribal projects; and (B) In the case of lead service line replacement projects, the recipient must replace the full length of the service line and may not replace only a partial portion of the service line. (iv) Additional lead remediation and household water quality testing. (A) In the case of lead service line replacement projects, the recipient must replace the full length of the service line and may not replace only a partial portion of the service line; and (B) In the case of projects within the scope of the program the EPA is authorized to establish under section 1459B(b)(1) of the Safe Drinking Water Act, the recipient may determine the income eligibility of homeowners served by lead service line replacement projects in its discretion. (v) Drinking water projects to support increased population. (A) The project is needed to support increased population, with need assessed as of the time the project is undertaken; (B) The project is designed to support no more than a reasonable level of projected increased need, whether due to population growth or otherwise; (C) The project is a cost-effective means for achieving the desired level of service; and (D) The project is projected to continue to provide an adequate level of drinking water over its estimated useful life. (vi) Dams and reservoirs. (A) The project meets the requirements of 40 CFR 35.3520 other than the following requirements: (1) (2) (B) The primary purpose of the dam or reservoir is for drinking water supply; (C) The project is needed for the provision of drinking water supply, with need assessed as of the time the project is initiated; (D) The project is designed to support no more than a reasonable level of projected increased need, whether due to population growth or otherwise; and (E) The project is a cost-effective means for achieving the desired level of service. (vii) Private wells. (2) Broadband investments General. (A) The broadband infrastructure is designed to provide service to households and businesses with an identified need, as determined by the recipient, for such infrastructure; (B) The broadband infrastructure is designed to, upon completion: ( 1 ( 2 (i) (ii) (C) The service provider for a completed broadband infrastructure investment project that provides service to households is required, for as long as the SLFRF-funded broadband infrastructure is in use, by the recipient to: ( 1 ( 2 (ii) Cybersecurity infrastructure investments. (f) Meeting the non-Federal matching requirements for Bureau of Reclamation projects. (g) Natural Disaster Emergency Relief. (1) Identifying emergency relief from the physical or negative economic impacts of a natural disaster. (i) Identifies either: (A) a natural disaster that has occurred or is expected to occur imminently and that has been the subject of an emergency declaration or designation applicable to the recipient's geography and jurisdiction in the form of: (1) (2) (3) (4) (B) a natural disaster that is threatened to occur in the future, provided that the recipient documents evidence of historical patterns or predictions of natural disasters that would reasonably demonstrate the likelihood of the future occurrence of a natural disaster in the recipient's jurisdiction; and (ii) Provides emergency relief that responds to and is related and reasonably proportional to: (A) the physical or negative economic impacts of the natural disaster identified in paragraph (g)(1)(i)(A) of this section, or (B) the potential physical or negative economic impacts of the natural disaster identified in paragraph (g)(1)(i)(B) of this section. (2) Enumerated eligible uses. (i) the physical or negative economic impacts of natural disasters identified under paragraph (g)(1)(i)(A) of this section by engaging in one of the following activities, provided that the emergency relief is related and reasonably proportional to the physical or negative economic impacts of the natural disaster identified: (A) Temporary emergency housing, food assistance, and financial assistance for lost wages; (B) Emergency protective measures, including assistance for emergency access, medical care and transport, emergency operations center related costs, and other activities traditionally undertaken as part of emergency response; (C) Debris removal activities, including the clearance, removal, and disposal of vegetative debris, construction and demolition debris, sand, mud, silt, gravel, rocks, boulders, white goods, and vehicle and vessel wreckage; (D) Restoration of public infrastructure damaged by a natural disaster, including roads, bridges, and utilities; (E) Increased operational costs, including payroll costs and costs for government facilities and government services; (F) Cash assistance for uninsured or underinsured expenses, and cash assistance serving low-income households; or (G) Home repairs for uninhabitable primary residences; or (ii) the potential physical or negative economic impacts of natural disasters identified under paragraph (g)(1)(i)(B) of this section by using funds for mitigation activities, provided that the emergency relief is related and reasonably proportional to the potential physical or negative economic impacts of the natural disaster identified, and provided further that if funds are used for capital expenditures under this paragraph, a recipient, other than a Tribal government, must prepare a written justification for activities under this paragraph (g)(2)(ii) with total capital expenditures of $1 million or greater. Such written justification must include the following elements: (A) Describe the emergency relief provided by the mitigation activity and why it is needed to lessen or avert the potential impacts of the natural disaster that is threatened to occur in the future; (B) Explain why the capital expenditure is appropriate to address the need for emergency relief; and (C) Compare the proposed capital expenditure to at least two alternative capital expenditures and demonstrate why the proposed capital expenditure is superior. (3) Duplication of benefits. (B) A recipient may provide assistance with respect to disaster losses to a person, business concern, or other entity that is or may be entitled to receive assistance for those losses from another source, if such person, business concern, or other entity has not received the other benefits by the time of application for assistance and the person, business concern, or other entity agrees to repay any duplicative assistance to the recipient. A recipient providing assistance with respect to disaster losses shall coordinate with the relevant Regional Administrator of the Federal Emergency Management Agency and state disaster-assistance administrator. Recipients shall notify subrecipients and contractors that, when providing assistance with respect to disaster losses, those entities are responsible for ensuring that beneficiaries disclose any other assistance received for the same disaster losses prior to receiving assistance under this paragraph (g). (C) Funds shall be used last in the delivery sequence unless the recipient, in consultation with the appropriate Regional Administrator of the Federal Emergency Management Agency or state disaster-assistance administrator, determines that another sequence is appropriate. (h) Certain infrastructure projects. (1) Surface Transportation projects. (i)(A) A recipient may use funds to expand the scope of, to cover additional costs associated with, or to otherwise supplement funding for a project receiving funding from the Department of Transportation at the time that the funds are obligated and expended for the project. (B) A recipient may use funds for a Surface Transportation project that is not funded by the Department of Transportation at the time the funds are obligated and expended. (C) A recipient may use funds to satisfy non-Federal share requirements for a project eligible under the provisions identified in paragraphs (1), (18), (21), and (27) of the definition of “Surface Transportation project” in § 35.3 or to repay a loan provided under the Transportation Infrastructure Finance and Innovation Act program under 23 U.S.C. chapter 6. (ii) The following limitations and requirements apply to funds used for Surface Transportation projects under paragraphs (h)(1)(i)(A) and (h)(1)(i)(B) of this section. (A) Funds used for Surface Transportation projects eligible under the provisions set forth in paragraphs (20) through (24) of the definition of “Surface Transportation projects” in § 35.3 shall not be used for operating expenses of such a project. (B) Except as otherwise determined by the Secretary or the head of the Federal agency to which the Secretary has delegated authority, the requirements of titles 23, 40, and 49 of the U.S. Code, and the associated implementing regulations, apply to Surface Transportation projects, including but not limited to the following: ( 1 ( 2 ( i ( ii ( iii ( 3 ( 4 2 i iii ( 5 (C) Except as otherwise determined by the Secretary or the head of the Federal agency to which the Secretary has delegated authority, the requirements of the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq. (D) When a State uses funds for a Surface Transportation project eligible under title 23 of the U.S. Code or that otherwise would be subject to the requirements of title 23, the project must either: (1) (2) (2) Title I projects. (i) Except as otherwise determined by the Secretary or the head of the Federal agency to which the Secretary has delegated authority, the requirements of Title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301 et seq. (A) At least 70 percent of funds used for such projects, in the aggregate, must be used for projects that principally benefit low- and moderate-income persons, in accordance with the definitions and requirements set forth at 24 CFR 570.3, 24 CFR 570.200(a)(3), and 24 CFR 570.208(a) for recipients that are not Tribal governments, and at 24 CFR 1003.4 and 1003.208 for Tribal government recipients; provided, however, that Tribal governments may demonstrate that beneficiaries of Title I assistance are “low and moderate income beneficiaries,” as defined at 24 CFR 1003.4, based on an attestation by the Tribal government that these beneficiaries are receiving or are eligible to receive services administered by the Tribal government on the basis of an individual's income. (B) In the case of recipients that are not Tribal governments, funds used for projects must satisfy at least one of the national objectives as set forth in 24 CFR 570.208. (C) Not more than 15 percent of funds used for such projects, in the aggregate, may be used for public services activities and projects eligible under 42 U.S.C. 5305(a)(8). (D) Not more than 20 percent of funds used for such projects, in the aggregate, may be used for planning and administrative costs, as described at 24 CFR 570.200(g), 570.205, and 570.206 with respect to recipients that are not Tribal governments, and as described at 24 CFR 1003.205 and 1003.206 with respect to recipients that are Tribal governments. (E) In the case of recipients that are not Tribal governments, funds used for such projects must satisfy the requirements set forth at 42 U.S.C. 5310 and 24 CFR 570.603. (F) Prior to commencing a Title I project, a recipient must comply with the environmental protection measures set forth at 42 U.S.C. 5304(g) and the implementing regulations set forth at 24 CFR 570.604, 24 CFR 1003.605, and 24 CFR part 58, provided that the certification contemplated by 42 U.S.C. 5304(g) shall be submitted to the Secretary and not the Secretary of the Department of Housing and Urban Development. (ii) To the extent a Title I project relates to broadband infrastructure, the requirements of section 60102 of the Infrastructure Investment and Jobs Act shall apply. (3) Requirements applicable to Surface Transportation projects and Title I projects. (ii) Funds used for the projects set forth in paragraph (h) of this section must supplement, and not supplant, other Federal, State, territorial, Tribal, and local government funds (as applicable) that (A) in the case of non-Federal funds, have been obligated for activities or projects that are eligible as part of any Surface Transportation project or Title I project, as applicable, or (B) in the case of Federal funds, a Federal agency has committed to a particular project pursuant to an award agreement or otherwise. § 35.7 Pensions. A recipient (other than a Tribal government) may not use funds for deposit into any pension fund. § 35.8 Tax. (a) Restriction. (b) Violation. (1) Covered change. (2) Exceeds the de minimis threshold. (3) Reduction in net tax revenue. (4) Consideration of other changes. (i) The aggregate amount of the expected increases in tax revenue caused by one or more covered changes that, either based on a reasonable statistical methodology to isolate the impact of the covered change in actual revenue or based on projections that use reasonable assumptions and do not incorporate the effects of macroeconomic growth to reduce or increase the projected impact of the covered change, the State or Territory assesses has had or predicts to have the effect of increasing tax revenue; and (ii) Reductions in spending, up to the amount of the State's or Territory's net reduction in total spending, that are in: (A) Departments, agencies, or authorities in which the State or Territory is not using funds; and (B) Departments, agencies, or authorities in which the State or Territory is using funds, in an amount equal to the value of the spending cuts in those departments, agencies, or authorities, minus funds used. (c) Amount and revenue reduction cap. (1) The reduction in net tax revenue of the State or Territory for the reporting year, measured as the difference between the State's or Territory's baseline and its actual tax revenue, each measured as of the end of the reporting year; and, (2) The aggregate amount of the reductions in tax revenues caused by covered changes identified in paragraph (b)(1) of this section, minus the sum of the amounts in identified in paragraphs (b)(4)(i) and (ii) of this section. § 35.9 Compliance with applicable laws. A recipient must comply with all other applicable Federal statutes, regulations, and executive orders, and a recipient shall provide for compliance with the American Rescue Plan Act, this subpart, and any interpretive guidance by other parties in any agreements it enters into with other parties relating to these funds. § 35.10 Recoupment. (a) Identification of violations In general. (2) Annual reporting of amounts of violations. (b) Calculation of amounts subject to recoupment In general. (2) Violations of § 35.8. (i) The amount set forth in § 35.8(c); and, (ii) The amount of funds received by such recipient. (c) Initial notice. (d) Request for reconsideration. (1) An explanation of why the recipient believes all or some of the amount should not be subject to recoupment; and (2) A discussion of supporting reasons, along with any additional information. (e) Final amount subject to recoupment. (f) Repayment of funds. (1) Within 120 calendar days of receipt of the notice of recoupment provided under paragraph (c) of this section, in the case of a recipient that does not submit a request for reconsideration in accordance with the requirements of paragraph (d) of this section; or (2) Within 120 calendar days of receipt of the Secretary's decision under paragraph (e) of this section, in the case of a recipient that submits a request for reconsideration in accordance with the requirements of paragraph (d) of this section. (g) Other remedial actions. § 35.11 Payments to States. (a) In general. (b) Payment of withheld amount. (1) A certification, in the form provided by the Secretary, that such State or Territory requires the payment to carry out the activities specified in section 602(c) of the Social Security Act and will use the payment in compliance with section 602(c) of the Social Security Act; and (2) Any reports required to be filed by that date pursuant to this part that have not yet been filed. § 35.12 Distributions to nonentitlement units of local government and units of general local government. (a) Nonentitlement units of local government. (b) Budget cap. (c) Units of general local government. (d) Additional conditions. Subpart B—Compensation and Capital Distributions § 35.20 Purpose, applicability, and general provisions. (a) Purpose. (b) Applicability. (c) Limitation of authority. § 35.21 Definitions. Except as modified in this regulation or unless the context otherwise requires, the terms used in this regulation have the same meaning as set forth in the relevant statutes. For purposes of this subpart: Act et seq. Appropriate Federal banking agency Capital distributions (1) Dividends, including discretionary dividends, on non-senior securities and any other payments on a share of stock or other equity or equivalent interest; (2) Payments, including interest payments, on non-senior securities, that the issuer has full discretion to permanently or temporarily suspend without triggering a default; (3) Redemptions or repurchases of non-senior securities; or (4) Any similar transaction that the Department of the Treasury determines to be in substance a capital distribution; (5) Provided, that a “capital distribution” does not include: (i) Redemptions or repurchases of shares that are part of an employee stock ownership plan for an ECIP recipient that is not publicly traded, provided that the repurchase is required solely by virtue of the Employee Retirement Income Security Act of 1974, as amended; (ii) In the case of federally insured credit unions: (A) Payments of dividends and interest (as defined by 12 CFR 707.2(h) and (o)) on accounts held by their members; provided that this exclusion does not apply to any extraordinary or special dividend by a credit union; or (B) Redemptions of membership share interests upon voluntary or involuntary terminations of membership by a credit union or its members, as applicable; and (iii) Solely in the case of § 35.23(b) (Limit on amount of capital distributions), redemptions or repurchases of non-senior securities if the issuer of the non-senior securities being repurchased or redeemed fully funds the redemption or repurchase by issuing at least a corresponding amount of new non-senior securities that rank equally in liquidation with, receive the same capital treatment as and, if applicable, have a stated maturity date no earlier than the non-senior securities being redeemed or repurchased. ECIP ECIP investment ECIP investment agreement ECIP investment date ECIP period (1) The date on which the ECIP recipient has fully redeemed or repaid the ECIP investment received under ECIP; (2) The date on which the investment the ECIP recipient received under the ECIP is no longer held, in full or in part, by the Department of the Treasury or any affiliate thereof; and (3) Ten years after the ECIP investment date. ECIP recipient Excessive or luxury expenditures (1) Excessive expenditures on any of the following to the extent such expenditures are not reasonable expenditures for staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the ECIP recipient's business operations: (i) Entertainment or events; (ii) Office and facility renovations; (iii) Aviation or other transportation services; (iv) Tax gross-ups; and (v) Other similar items, activities, or events for which the ECIP recipient may reasonably anticipate incurring expenses, or reimbursing an employee for incurring expenses; (2) Provided, that reasonable capital investments in technology, equipment, and similar items that expand the long-term capability of an ECIP recipient to provide products and services to its customers and community are not excessive or luxury expenditures. Excessive or luxury expenditures policy (1) Identify the types or categories of expenditures which are prohibited (which may include a threshold expenditure amount per item, activity, or event or a threshold expenditure amount per employee receiving the item or participating in the activity or event); (2) Identify the types or categories of expenditures for which prior approval is required (which may include a threshold expenditure amount per item, activity, or event or a threshold expenditure amount per employee receiving the item or participating in the activity or event); (3) Provide reasonable approval procedures for expenditures requiring prior approval; (4) Require the ECIP recipient to deliver a certification, executed by two senior executive officers (one of which must be its principal executive officer or principal financial officer) certifying that the approval of any expenditure requiring the prior approval of any senior executive officer, any executive officer of a substantially similar level of responsibility, or the ECIP recipient's board of directors (or a committee of such board of directors), was properly obtained with respect to each such expenditure; (5) Require the prompt internal reporting of violations to an appropriate person or persons identified in this policy; and (6) Mandate accountability for adherence to the policy. FDIC Federal Reserve Board NCUA Non-senior security pari passu OCC Principal executive officer Principal financial officer Senior executive officer Severance payment Total compensation § 35.22 Restrictions on compensation. (a) Restriction on executive compensation. (1) For an ECIP recipient or subsidiary of an ECIP recipient that is an insured depository institution, except for federally insured credit unions, the Interagency Guidelines Establishing Standards for Safety and Soundness as issued by the appropriate Federal banking agency for the ECIP recipient or subsidiary ( i.e., (2) For an ECIP recipient that is a bank holding company, the requirements for corporate practices of bank holding companies as issued by the Federal Reserve Board at 12 CFR 225.4; (3) For an ECIP recipient that is a savings and loan holding company, the requirements regarding safe and sound operations of savings and loan holding companies as issued by the Federal Reserve Board at 12 CFR 238.8; and (4) For an ECIP recipient that is a federally insured credit union, the requirements on compensation and benefits for federally insured credit unions as issued by the NCUA at 12 CFR 701.19(a); 12 CFR 701.21(c)(8); 12 CFR 702.203(b)(10); and 12 CFR 702.204(b)(10). (b) Restriction on severance payments. (1) For an ECIP recipient that is an insured depository institution, a bank holding company or a savings and loan holding company, the limits and prohibitions to enter into contracts to pay and to make golden parachute and indemnification payments to institution-affiliated parties to the extent applicable to the ECIP recipient, as issued by the FDIC at 12 CFR part 359; and (2) For an ECIP recipient that is a federally insured credit union, the limits and prohibitions on the ability of federally insured credit unions to enter into contracts to pay and to make golden parachute and indemnification payments to institution-affiliated parties as issued by the NCUA at 12 CFR 750.1. (c) Excessive or luxury expenditures. (2) If, after adopting an excessive or luxury expenditures policy, the board of directors of the ECIP recipient makes any material amendments to such policy, within ninety days of the adoption of the amended policy the board of directors must provide the amended policy to the Department of the Treasury and the ECIP recipient's appropriate Federal banking agency and post the amended policy on its internet website, if the ECIP recipient maintains an internet website. (3) The ECIP recipient must maintain, and continue the disclosure of any material amendments to, the excessive or luxury expenditures policy during the ECIP period, unless the Department of the Treasury determines that discontinuation of the policy would not be contrary to the public interest. (d) Material changes in policies or procedures. (1) A request to make a material change to compensation, severance pay or excessive luxury expenditures policies or procedures, must be submitted by an ECIP recipient in writing and received by the Department of the Treasury at least thirty days prior to the effective date of the policy change. The request should describe the change, reason for the change, and anticipated financial or other impact of the change on the condition of the ECIP recipient. (2) The request will be deemed approved thirty days after the ECIP recipient has provided a complete request to the Department of the Treasury, unless, prior to the expiration of the thirty-day period, the Department of the Treasury objects to the proposed change or notifies the ECIP recipient that additional time is required in order to complete review of the proposed change to policy or procedures § 35.23 Restrictions on dividends, share buybacks, and other capital distributions. (a) Restriction on capital distributions due to nonpayment. (1) If the ECIP investment is in the form of preferred stock, the ECIP recipient has paid in full the dividends for the last completed dividend period on the preferred stock; or (2) If the ECIP investment is in a form other than preferred stock (including, subordinated debt), the ECIP recipient has paid in full the principal, interest, and other amounts due and payable under the terms of the ECIP investment, and no amount that has been deferred remains unpaid. (b) Limit on amount of capital distributions. (2) If the ECIP recipient is federally insured credit union, the ECIP recipient shall obtain the Department of the Treasury's prior approval to make any capital distributions if the distribution would: (i) In the case of a dividend, be payable from retained earnings (as defined in 12 CFR 702.2(f)) other than undivided earnings; or (ii) Cause the ECIP recipient's net worth classification to fall below “adequately capitalized” (as defined in 12 CFR 702.102(a)(2)). (c) Exception for Subchapter S Corporations and other pass-through entities. § 35.24 Annual certification. On an annual basis an ECIP recipient shall, in accordance with the terms and conditions of its ECIP investment agreement, submit to the Department of the Treasury a certification executed by two senior executive officers (one of which must be either its principal executive officer or principal financial officer) that the ECIP recipient is in compliance with each of the excessive compensation, severance pay, and excessive or luxury expenditures requirements and restrictions on capital distributions set forth in §§ 35.22 and 35.23. § 35.25 Exemptive relief. The Department of the Treasury may grant exemptions or waivers from some or all of the restrictions on share buybacks and dividend payments under this part if such exemption or waiver is necessary or appropriate to effectuate the goals of the ECIP or to protect the public interest. Such exemptions or waivers may be subject to such terms and conditions as deemed necessary or appropriate by the Department of the Treasury. Subpart C—State Small Business Credit Initiative Small Business Owners Demographics Data Collection Source: 87 FR 13633, Mar. 10, 2022, unless otherwise noted. § 35.26 Authority, scope, and purpose. (a) Authority and scope. (b) Purpose. § 35.27 Definitions. In this subpart: (a) Controlling influence over a business (b) Jurisdiction (1) One of the fifty states of the United States; (2) The District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of Northern Mariana Islands, Guam, American Samoa, and the United States Virgin Islands; (3) When designated by one of the fifty states of the United States, a political subdivision of that state that the U.S. Department of the Treasury determines has the capacity to participate in the State Small Business Credit Initiative; (4) Under the circumstances described in 12 U.S.C. 5703(d), a municipality of one of the fifty states of the United States to which the U.S. Department of the Treasury has given a special permission under 12 U.S.C. 5703(d); and (5) A Tribal government or a group of Tribal governments that jointly apply to be approved by the U.S. Department of Treasury to participate in the State Small Business Credit Initiative as a single participating jurisdiction. (c) Minority individual (d) Minority-owned or controlled business (1) If privately owned, 51 percent or more is owned by minority individuals; (2) If publicly owned, 51 percent or more of the stock is owned by minority individuals; (3) In the case of a mutual institution, a majority of the board of directors, account holders, and the community which the institution services is predominantly comprised of minority individuals; or (4) One or more minority individuals have the power to exercise a controlling influence over the business. (e) Participating jurisdiction (f) Principal owner (g) Socially and economically disadvantaged individual (SEDI) demographics-related business (1) Membership of a group that has been subjected to racial or ethnic prejudice or cultural bias within American society; (2) Gender; (3) Veteran status; (4) Limited English proficiency; (5) Disability; (6) Long-term residence in an environment isolated from the mainstream of American society; (7) Membership of a federally or state-recognized Indian Tribe; (8) Long-term residence in a rural community; (9) Residence in a U.S. territory; (10) Residence in a community undergoing economic transitions (including communities impacted by the shift towards a net-zero economy or deindustrialization); or (11) Membership of an underserved community. (i) Underserved communities equity (ii) Equity (12) For purposes of this paragraph (g), a business is “owned and controlled” by applicable individuals: (i) If privately owned, 51 percent or more is owned by such individuals; (ii) If publicly owned, 51 percent more or of the stock is owned by such individuals; and (ii) In the case of a mutual institution, if a majority of the board of directors, account holders, and the community which the institution services is predominantly comprised of such individuals. (h) Veteran-owned or controlled business (1) If privately owned, 51 percent or more is owned by veterans; (2) If publicly owned, 51 percent or more of the stock is owned by veterans; (3) In the case of a mutual institution, a majority of the board of directors, account holders, and the community which the institution services is predominantly comprised of veterans; or (4) One or more individuals who are veterans have the power to exercise a controlling influence over the business. (i) Women-owned or controlled business (1) If privately owned, 51 percent or more is owned by females; (2) If publicly owned, 51 percent or more of the stock is owned by females; (3) In the case of a mutual institution, a majority of the board of directors, account holders, and the community which the institution services is predominantly comprised of females; or (4) One or more individuals who are females have the power to exercise a controlling influence over the business. § 35.28 Annual report requirements. By March 31 of each year beginning March 31, 2023, and ending with the report to be submitted on March 31, 2028, each participating jurisdiction shall submit to the U.S. Department of the Treasury an annual report that includes, with respect to the previous calendar year, the following data for each business that receives a loan, investment, other credit or equity support, or technical assistance as part of the State Small Business Credit Initiative. For each business that receives a loan, investment, or other credit or equity support under the State Small Business Credit Initiative, the reported data shall be based on the ownership and control of the business immediately before the consummation of such loan, investment, or other credit or equity support-related transaction. For each business that receives technical assistance under the State Small Business Credit Initiative, the reported data shall be based on the ownership and control of the business at the time it receives such technical assistance. (a) Self-certified SEDI demographics-related business status. (2) The participating jurisdiction must permit each business to identify all of the categories that apply in the definition of SEDI demographics-related business, and the participating jurisdiction must report to Treasury all categories identified by the business. (b) Minority-owned or controlled business status. (c) Women-owned or controlled business status. (d) Veteran-owned or controlled business status. (e) Race of principal owners. (2) The participating jurisdiction must permit each business to identify all of the Office of Management and Budget's minimum categories and disaggregated categories in paragraph (e)(1) of this section with which each principal owner of the business identifies, and the participating jurisdiction must report to Treasury all categories identified by the business. (f) Ethnicity of principal owners. (g) Middle Eastern or North African Ancestry of principal owners. (h) Gender of principal owners. (i) Sexual orientation of principal owners. (j) Veteran status of principal owners. § 35.29 Format. Participating jurisdictions must submit the information required under § 35.28 using the formats specified from time to time on the U.S. Department of the Treasury's website. Appendix A to Part 35—Emergency Capital Investment Program Model Excessive or Luxury Expenditures Policy I. Introduction A participant in the Emergency Capital Investment Program (ECIP recipient, as defined at 31 CFR 35.21) is required to establish and maintain policies designed to eliminate excessive or luxury expenditures. The term “excessive or luxury expenditures” means excessive expenditures on any of the following to the extent such expenditures are not reasonable expenditures for staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the ECIP recipient's business operations: (1) Entertainment or events; (2) office and facility renovations; (3) aviation or other transportation services; (4) tax gross-ups; and (5) other similar items, activities, or events for which the ECIP recipient may reasonably anticipate incurring expenses, or reimbursing an employee for incurring expenses. (1) To facilitate compliance with this requirement, the Department of the Treasury is making available a model excessive or luxury expenditures policy. An ECIP recipient may refer to this model policy for guidance in satisfying the requirement at 31 CFR 35.22(c) to adopt and maintain an excessive or luxury expenditures policy. Alternatively, ECIP recipients may use other forms of, or existing policies relating to, excessive or luxury expenditures, provided that such other forms or policies satisfy all the requirements of the regulation at 31 CFR 35.22(c). (2) An ECIP recipient's luxury or excessive expenditure policy should be posted on the ECIP recipient's website. Any material amendments to an ECIP recipient's excessive or luxury expenditures policy must made in accordance with the provisions set forth in 31 CFR 35.22(d) (Material changes in policies or procedures). If the ECIP recipient makes any material amendments to this policy, then the ECIP recipient must submit a copy of the amended policy to the Department of the Treasury and post the amended policy on the ECIP recipient's website. ECIP recipients should refer to 31 CFR part 35, subpart B for additional information regarding definitions of terms used in the model policy, disclosure, material changes, certification, and other compliance requirements. II. Model Excessive or Luxury Expenditures Policy A. Purpose The purpose of this policy is to establish parameters and internal controls governing the expenditures of [NAME OF ECIP RECIPIENT] (together with its subsidiaries and controlled affiliates, referred to hereafter as the Organization). Expenditures of the Organization should be customary, prudent, consistent with applicable laws and regulations, and reasonably related to the Organization's business objectives and needs. This policy identifies expenditures that are excessive or luxury expenditures, creates processes that are reasonably designed to eliminate such expenditures, and establishes accountability for compliance. Routine operating expenses, capital expenditures, and other reasonable expenses are not prohibited by this policy. B. Authority The Organization has authority to provide compensation and benefits that are reasonable. This policy establishes a prohibition on expenditures that are excessive or luxury expenditures as required by the Department of the Treasury's Emergency Capital Investment Program regulations (31 CFR part 35), and as may be required by other statutes and regulations. C. Responsibility This policy is the responsibility of the Organization's board of directors (board). The board has approved this policy and will review compliance with this policy no less frequently than annually, and summary data on excessive or luxury expenditures will be reported to the board as part of the compliance review. D. Scope This policy applies to all employees, officers, and directors of the Organization with regard to any expenditure of the Organization. In making any expenditure on behalf of the Organization, employees, officers, and directors should consider whether the expenditure is an excessive or luxury expenditure that is prohibited under this policy. E. Excessive or Luxury Expenditures “Excessive or luxury expenditures” means excessive expenditures on any of the following to the extent not reasonable or appropriate expenditures for business development, staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the Organization's business operations: (1) Entertainment or events. (2) Office and facility renovations. (3) Aviation or other transportation services. e.g., (ii) The principal executive officer may establish or delegate to an appropriate executive officer the authority to establish processes for reimbursement of reasonable travel expenditures, which processes must be reviewed by executive management no less frequently than annually. (4) Tax gross-ups. (5) Other similar items, activities, or events for which the Organization may reasonably anticipate incurring expenses or reimbursing an employee for incurring expenses. (ii) For the avoidance of doubt, reasonable capital investments in technology, equipment, and similar items that expand the long-term capability of an ECIP recipient to provide products and services to its customers and community are not excessive or luxury expenditures. (iii) The principal executive officer may establish or delegate to an appropriate executive officer the authority to establish processes for the evaluation and approval of expenditures in the preceding categories that are not luxury or excessive expenditures and that are not otherwise exempt from this policy. These processes must be reviewed by executive management no less frequently than annually, as well as any additional threshold expenditure amounts per item, activity, or event, or a threshold expenditure amount per employee receiving the item or participating in the activity or event under this policy. Such approvals must be reported to the board of directors (which may be in an appropriate summary form) no less frequently than annually. F. Exceptions or Violations (1) Any exception or violation of this policy must be promptly reported to the Organization's (i) principal executive officer, (ii) officer with primary responsibility for the Organization's compliance function, or (iii) officer designated with primary responsibility for overseeing the administration, monitoring, and compliance with this policy. Exceptions and violations must be reported to the board of directors no less frequently than annually, or more frequently as the nature and severity of violation may warrant. All employees, officers, and directors of the Organization must adhere to this policy and will be held accountable for compliance. Any employee or officer who violates this policy may be subject to disciplinary action up to and including termination of employment. (2) Any employee or officer that is aware of any circumstance that may indicate a violation of this policy is required to report such circumstance to their supervisor or the Organization's principal compliance officer or compliance group. The Organization prohibits retaliation against any employee or officer for making a good faith report of actual or suspected violations of the Organization's code of conduct, laws, regulations, or other Organization policies, including this policy. A finding of retaliation against any such employee or officer may result in disciplinary action up to and including termination. Failure to promptly report known violations by others may also be deemed a violation of the Organization's code of conduct. (3) Employees and officers may ask questions, raise concerns, or report instances of non-compliance with this policy and/or any of the existing underlying relevant policies by contacting the following: [COMPLIANCE HELP LINE OR E-MAIL]. G. Certification On an annual basis, the ECIP recipient will deliver to the Department of the Treasury a certification, executed by two senior executive officers (one of which must be either the ECIP recipient's principal executive officer or principal financial officer) certifying that (i) the Organization is in compliance with this policy and (ii) the approval of any expenditure requiring the prior approval of any senior executive officer, any executive officer of a substantially similar level of responsibility, or the board of directors (or a committee of such board), was properly obtained with respect to each such expenditure.