The U.S. Department of the Treasury (Treasury) issued guidance and a fact sheet on March 30 addressing the reallocation of the $21.5 billion in emergency rental assistance appropriated under the “American Rescue Plan Act” and known as “ERA2.” Treasury was statutorily required to identify funds for reallocation from amounts allocated to grantees but not yet paid out beginning on March 31, 2022. The ERA2 reallocation guidance includes several recommendations made by NLIHC on behalf of its End Rental Arrears to Stop Evictions (ERASE) cohort and Disaster Housing Recovery Coalition.
NLIHC had urged Treasury to begin the process of recapturing and reallocating ERA2 funds starting on March 31, 2022, to help ensure these funds were used as effectively as possible to prevent housing instability during the pandemic. NLIHC had also called on the administration to act quickly to recapture ERA2 funds from programs where they could be left unused and reallocate them to states and communities in urgent need of resources to help tenants behind on rent. Additionally, NLIHC recommended that Treasury reallocate funds to grantees in the same state where funds were initially allocated when feasible and redirect funds to jurisdictions where funding would be quickly deployed to keep families and individuals safely housed. Without access to ERA2 funds, many households may face eviction, even as millions of dollars remain unspent, because some grantees are unable or unwilling to quickly deploy these emergency funds.
The administration incorporated several NLIHC recommendations in its ERA2 reallocation guidance. Treasury announced that its ERA2 reallocation guidance seeks to help more people stay in their homes by making more resources available to high-performing grantees and based on need, incentivizing increased ERA2 spending through the adoption of best practices among grantees and the use of other funds to meet the significant need for assistance, and working to ensure funds do not go unused by programs unwilling or unable to quickly deploy these funds. As with ERA1 reallocation, the ERA2 reallocation process will take place over multiple rounds, provide eviction-mitigation opportunities, and prioritize keeping funds within the same state consistent with local needs.
“Treasury’s new guidance on the recapture and reallocation of ERA2 allocations implements many of NLIHC’s recommendations,” said NLIHC President and CEO Diane Yentel. “The Biden administration is being appropriately aggressive in ensuring these emergency funds are quickly used to assist households still in need.”
The new ERA2 reallocation guidance released by Treasury includes the following provisions:
Funds Subject to Reallocation: The ERA2 statute prohibits Treasury from reallocating funds that have already been paid out to grantees. As a result, those grantees that keep up with the expenditure ratio thresholds outlined in the guidance and obligate just over half of their ERA2 funding in 2022 will receive their full allocations and avoid reallocations entirely. For any grantees that do not draw their first tranche of ERA2 funds by April 30, 2022, Treasury may consider all undrawn funds exceeding 40% of the initial ERA2 allocation to be excess funds subject to reallocation.
ERA2 Expenditure Ratio: A grantee’s ERA2 expenditure ratio will be calculated as the grantee’s total expenditure of ERA2 funds on financial assistance and housing stability services (for the Quarter 3 and Quarter 4 assessments) divided by 75% (for Quarter 1 and Quarter 2 assessments) or 85% (for subsequent assessments) of the grantee’s total ERA2 allocations, including any amounts reallocated to or from the grantee. Since Treasury will start including funds spent on housing stability services in “total expenditure” in Q3 and Q4, the ERA2 reallocation process will preserve grantees’ ability to obligate up to 10% of their ERA2 funds on housing stability services in Q1 and Q2. Treasury encourages grantees to use ERA2 funds for housing stability services.
Quarter 1 Assessment: Grantees with expenditure ratios below 20% as of March 31 will be determined to have “excess funds” subject to potential recapture. The amount of excess funds will be equal to the difference between a grantee’s expenditures and the amount needed to reach the 20% threshold.
- Grantees can avoid reallocation if their expenditure ratio is at least 20% as of April 30.
- Grantees can avoid reallocation if they voluntarily reallocate at least 25% of their ERA1 allocation.
Subsequent Quarterly Assessments: After the first assessment, Treasury will assess grantees’ expenditure ratios (ER) on a quarterly basis. The expenditure ratio threshold will rise by 20 percentage points each quarter. The expenditure ratio threshold as of June 30 will be 40%; as of September 30, it will be 60%. If a grantee fails to submit a required quarterly report by the deadline, Treasury may deem all undrawn funds exceeding 40% of the grantee’s initial ERA2 allocation to be excess funds.
Final Assessment: Any ERA2 funds that are undrawn as of December 31, 2022 – excluding the first tranche of funds, comprising 40% of the grantee’s initial ERA2 allocation – may be recaptured and reallocated. According to the ERA2 statute, funds paid to a grantee (based on the grantee having obligated at least 75% of funds disbursed to date) may not be reallocated.
Distribution of Recaptured Funds: Treasury expects to distribute reallocated funds after each quarterly assessment. A grantee must have spent or obligated at least 50% of its own initial allocation to be eligible for reallocated funds. Treasury will begin accepting requests for reallocated funds after March 31, 2022.
Reallocation Priorities: Treasury will prioritize, when feasible, requests from grantees in the same state where the funds were initially allocated. Treasury will also prioritize areas with significant demonstrated need and ability to expend all their ERA1 and ERA2 funds promptly. Beginning with the reallocation based on the Quarter 2 assessment, Treasury will prioritize grantees that have used other sources of funding, including State and Local Fiscal Recovery Funds, to deliver additional rental and utility assistance.
Voluntary Reallocation: A grantee may request to transfer up to 60% of its initial ERA2 allocation to another grantee in the same state or territory that has obligated or spent at least 50% of its own initial ERA2 allocation. Grantees may request the transfer without designating any specific grantee as the transferee.
Read Treasury’s ERA2 reallocation guidance at: https://bit.ly/3Dn8wBs
Read Treasury’s fact sheet on the guidance at: https://bit.ly/3Dtilhd
Read NLIHC’s fact sheet on Treasury’s ERA2 reallocation at: https://bit.ly/3iTYX3x