Treasury Issues New Guidance on Using Unobligated ERA2 Funds for Affordable Rental Housing and Eviction Prevention Purposes

The U.S. Department of the Treasury (Treasury) published guidance on July 27 on the use of emergency rental assistance funds provided through the “American Rescue Plan Act” – referred to as “ERA2” – for affordable rental housing, eviction prevention, and housing stability purposes after October 1, 2022. The statute establishing the ERA2 program provides that a grantee may use its ERA2 funds that are unobligated as of October 1, 2022, for “other affordable rental housing and eviction prevention purposes, as defined by the Secretary, serving very low-income families.” Prior to obligating any funds for such purposes, the grantee must have obligated at least 75% of the total ERA2 funds allocated to it for ERA-eligible financial assistance, housing stability services, and administrative costs. Treasury added FAQ 46 to provide clarity on how grantees can use unobligated ERA2 funds.

The guidance includes the following provisions:

Obligation Threshold: The 75% obligation threshold is based on the grantee’s ERA2 amount as adjusted for any voluntary reallocation or recapture of funds. If a grantee reaches the 75% threshold after October 1, 2022, it may begin using ERA2 for eligible purposes once it reaches the threshold.

Eligible Affordable Rental Housing Purposes: ERA2 funds unobligated as of October 1, 2022, can be used for the construction, rehabilitation, or preservation of affordable housing projects and the operation of affordable housing projects that were constructed, rehabilitated, or preserved using ERA2 funds. Affordable rental housing projects must serve very low-income (VLI) families earning at or below 50% of area median income (AMI) and must remain affordable for a minimum of 20 years.

An affordable housing rental project funded, in whole or in part, with ERA2 funds must be aligned with at least one of the following programs and must meet the requirements of that program along with the other conditions set forth in the FAQ: the Low-Income Housing Tax Credit program, HOME Investment Partnerships Program, HOME-ARP, Housing Trust Fund, Public Housing Capital Fund, Indian Housing Block Grant Program, Section 202 Supportive Housing for the Elderly, Section 811 Supportive Housing for Persons with Disabilities, Farm Labor Housing Direct Loans and Grants, and USDA Multifamily Preservation and Revitalization.

Grantees may structure ERA2 funds as loans, including no-interest loans and deferred-payment loans; grants; interest subsidies; or other financial arrangements. ERA2 funds may not be used to establish, provide financial support to, or invest in revolving loan funds or other structured funds.

While these ERA2 funds must serve VLI households, they may be used in mixed-income housing projects, as long as the total investment of ERA2 in the project is proportional to the total development costs that are attributed to the units serving VLI households. For example, if 25% of a project’s units will be reserved for VLI families and 20% of the total costs of all housing units in the project are attributable to such reserved units, then ERA2 funds may be used to pay for up to 20% of the total development costs.

Grantees must obligate ERA2 funds by September 30, 2025, and all obligations must be liquidated no later than 120 calendar days after September 30, 2025. ERA2 funds are considered obligated upon the grantee’s approval of the loan, interest subsidy, grant, or other financial arrangement. Such obligations are considered to be liquidated for the purpose of award closeout upon the grantee’s disbursement of ERA2 funds. Any proceeds or income a grantee receives after September 30, 2025, from loans, interest subsidies, or other similar financial arrangements made with ERA2 funds must be used for affordable rental housing purposes or eviction prevention purposes in accordance with Treasury’s guidance.

Eligible Eviction Prevention Purposes: Treasury defines “eviction prevention purposes” in the same manner as housing stability services under FAQ 23. However, services provided with funds made available for eviction prevention purposes must serve very low-income families.

Administrative Costs: The ERA2 statute allows each grantee to use up to 15% of the total amount of ERA2 funds paid to it for eligible administrative costs. FAQ 29 requires that any administrative costs must be allocated by the grantee to the provision of financial assistance, housing stability services, or other affordable rental housing and eviction prevention purposes. Thus, a grantee’s administrative costs related to affordable rental housing and eviction prevention purposes may be paid with ERA2 funds only in an amount up to 15% of the grantee’s expenditures for these purposes.

Read Treasury’s updated guidance at: https://bit.ly/3zALF3Q