April 14, 2020

Uncertainty Around $150 Billion Coronavirus Relief Fund for States and Local Governments

The CARES Act (3/27/20) included the $150 billion which has not been distributed yet to states and local governments by the Treasury Department.

 

Local governments over 500,000 population can receive funds directly with the remaining amount going to states based on their population and a minimum of $1.25 billion for each state (see each state’s amount).

 

Treasury has not released guidance on how states will be allowed to use the funds. However, the law is relatively clear on allowable uses of funds for necessary expenditures: (i) from COVID-19 emergency; (ii) not budgeted; and (iii) incurred from 3/1-12/30/20. Note there is no mention of lost revenue as an eligible use.

 

The law defines local governments as a county, municipality, town, township, village, parish, borough, or other unit of general government below the state level. The law does not include mention of special purpose governmental jurisdictions.

 

On April 8th, Maryland Reps wrote the Treasury Secretary urging him “to include guidance to state recipients that allows for local governments with populations below 500,000 to receive a fair share to support their operations and needs (letter).” Mississippi Senators sent a similar letter urging “direct emergency payments from states to units of local government in their state as eligible expenditures… Treasury must not create an unnecessary complex burden of compliance that hinders states working with local governments – especially very small communities (letter).

 

On April 10th, Michigan Reps wrote their Governor to urge her to support small and mid-sized cities with the funding to ensure the continuation of water and wastewater (Congress).

 

In addition to the $150 billion, the CARES Act authorizes a new loan fund under the Federal Reserve which uses a different definition of local governments (i.e. “municipality”) as a “political subdivision of a State, and instrumentality of a municipality.” We have not seen the guidance for this new program yet.

 

Legislation being considered in Congress as part of the next relief legislation (version #4) would provide funding directly to small local governments and expand use of funds to cover lost revenue. However, the bill retains the CARES Act definition of local government.