On November 9, the U.S. Treasury released the Obligation Interim Final Rule (IFR) to address recipients’ questions and comments regarding the definition of obligation under the State and Local Fiscal Recovery Funds (SLFRF) program. The IFR does not alter the existing SLFRF obligation (December 31, 2024) or expenditure (December 31, 2026) deadlines, except for projects under the Surface Transportation projects and Title I eligible use categories, for which funds must be expended by September 30, 2026. Among other things, the IFR amends the definition of obligation to include costs associated with award reporting and compliance but does not revise the rule to define “costs incurred” by reference to recipient appropriation, budget, or allocation processes. The IFR does clarify that subrecipients are not subject to the December 31, 2024, obligation deadline.
Regarding amending the definition of “obligation,” the IFR provides that a recipient is also considered to have incurred an obligation by December 31, 2024, concerning a requirement under federal law or regulation or a provision of the SLFRF award terms and conditions to which the recipient becomes subject as a result of receiving or expending SLFRF funds. Accordingly, a recipient may use SLFRF funds to cover costs related to:
- Reporting and compliance requirements, including subrecipient monitoring,
- Single Audit costs,
- Record retention and internal control requirements,
- Property standards,
- Environmental compliance requirements, and
- Civil rights and nondiscrimination requirements.
The IFR lists the information a recipient must submit to Treasury regarding estimates of their allocation that will be used to cover administrative and compliance-related expenditures. The IFR is considered effective immediately. Upon publication in the Federal Register, which is expected soon, a 30-day comment period is opened for any interested stakeholders to provide feedback on all aspects of the IFR. In particular, Treasury is seeking responses to the following question: What are the advantages and disadvantages of the change made by this interim final rule to the definition of "obligation"?
GFOA is currently reviewing the IFR and anticipates submitting comments."