The U.S. Department of the Treasury is actively recouping State and Local Fiscal Recovery Funds (SLFRF) from recipients found to be out of compliance with program requirements. If your city is impacted, acting quickly is essential to avoid repayment, penalties, debt collection and future funding risks.
What Are the Penalties for Non-Compliant Local Governments?
Federal debt collection is legally mandated and happens quickly. If a city fails to resolve its balance, it could face more than 30% in additional charges within just 91 days.
- Days 1–30: No fees or interest are added if payment is made in full within this period.
- Day 31: A 5% interest rate begins to accrue daily (backdated to Day 1), and a one-time $25 administrative fee is applied.
- Day 91: An additional 6% penalty is applied, along with a 30% administrative fee.
Interest, penalties and fees accrue daily. While monthly installment plans are available, they include ongoing interest and administrative costs.
To avoid penalties, local governments should closely monitor their compliance status and regularly check the email address listed as their Point of Contact in Treasury’s system for official updates.
How Can My City Get Back into Compliance?
It is critical to submit your report as soon as possible to the Treasury portal. If you have any questions, you can reach out to advocacy@nlc.org. NLC is also offering Office Hours on Mondays and Thursdays. You can learn more about them here.
Why Might My City Be Out of Compliance?
You may be flagged for recoupment if your city:
- Did not submit the required April 2025 report (for annual and quarterly reporters).
- Did not obligate all SLFRF funds by 12/31/2024.
- Did not submit required documentation or adhere to the requirements of Uniform Guidance (e.g. did not submit an audit).
- Have an outstanding Information Document Request.
- Used funds for ineligible activities.
What is the SLFRF Recoupment Process?
If you have received initial outreach from Treasury or the Initial Notice of Recoupment, you still have time to resolve the instances of noncompliance. If you follow the “Action Required” steps in the Noncompliance Notice you can get back into compliance.
Initial Steps:
- Treasury sends the Initial Notice of Recoupment outlining the compliance issues.
- The notice will include a deadline to request reconsideration or come into compliance.
- Treasury may give an opportunity to fix the issue before recoupment is finalized.
If You Do Not Respond by the Deadline:
- If a recipient does not request reconsideration (or come into compliance) by the deadline, it must repay funds by the deadline stated in the Initial Notice.
- Treasury will provide a Final Notice of Recoupment confirming the recoupment and deadline.
If You Do Respond by the Deadline:
- Treasury will review your reconsideration request or compliance submission.
- Based on the review, Treasury may confirm, modify or withdraw the recoupment.
- If repayment is still required, the Final Notice will include a firm deadline. This is your last chance to resolve the issue.
What Happens If My City Remains Out of Compliance?
If no action is taken, the consequences are serious. Your SLFRF award will be terminated, funds will need to be returned to Treasury and the instance will be reported to SAM.gov. Continued noncompliance can harm a community’s chance of receiving federal funding in the future.
If you have decided to return some or all of the SLFRF funds you should avoid debt collection and pay back those funds to the federal government immediately. More information on paying back funds is provided below.
What to Expect from the Federal Debt Collection Process
Example:
Entity owes $100,000.00 in non-compliance
If non-compliance remains unresolved, the program team sends an “Initial Notice of Recoupment” letter. Entity has time to resolve or send payment before the balance becomes a debt and the process below begins.
Day 1-30
Day 1:
- Demand & Due Process Letter sent via email and postal mail
- 5% interest begins accruing, but will not be charged if debt is paid within 30 days
- 6% penalty begins accruing, but will not be charged if debt paid within 30 days
Example:
Day 1-30 balance is $100,000; 0% interest or penalty if paid within the first 30 days
Day 31-90
Day 31:
- Past Due Notice via email and postal mail
- 5% interest assesses
- 6% penalty continues accruing
- $25.00 admin fee assessed
Day 60-90:
Outbound phone call for the last contact before referral to collections
Example:
Day 80 balance is $101,120.89; $1095.89 interest; $25.00 admin fee
Day 91+ Onward
~Day 91:
- 6% penalty assesses
- Delinquent Debt Notice mailed
- 30%+ admin fee
- Interest, penalty and fees are assessed daily
- $50.00 admin fee assessed
- Debt remains indefinitely
Example:
Day 95 balance is $132,913.01; $1,301.37 interest; $1,561.64 penalty; $50.00 admin fee; ~$30,000 Delinquent Debt Mitigation (DDM) admin fee
Once the process begins, the debtor can:
- Pay in full
- Dispute
- Request Proof of Debt
- Request Compromise
- Request an installment agreement. Interest and monthly admin fee included, but penalty and delinquent fees avoided if in place before Day 90
Potential Consequences
- 30%+ additional fee
- May be sent to private collections
- May be offset
- May be ineligible for future federal funds
What Should My City Do If We’ve Entered Debt Collection?
- Ensure your mailing address is up to date for required letters.
- Ensure your Point of Contact email is up to date. Only ONE person will be contacted.
- Request an installment plan as soon as possible if full payment isn’t feasible.
How to Return Unobligated or Recouped Funds
Treasury uses Pay.gov to process repayments.
Steps to Pay:
- Accepted payment methods: ACH Debit, ACH Credit, Debit Card/PayPal.
- Have your SLFRF Recipient Number (found in your recipient report) ready.
- If paying a debt, you will need your Invoice Number (found on the Demand & Due Process Letter).
Act Now! There is Still Time to Resolve Issues
If your city is facing recoupment or is already in debt collection, don’t wait. Treasury deadlines move fast and penalties grow daily. Stay ahead of the process by:
- Responding promptly to all Treasury notices.
- Keeping your contact information up to date.
- Reaching out for help if you’re unsure how to proceed.
We’re Here to Help
Email us if you need any assistance. We’re here to help your community avoid penalties and stay eligible for future federal funding.
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