On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act provides a total of $139 billion to be proportionally allocated to each state, and to certain local governments in each state, based on population. An additional $11 billion will be allocated to the District of Columbia, U.S. territories, and tribal governments. On April 22, 2020, The United States Treasury Department posted guidance on how this money can be used by each state and eligible local government. A summary of that guidance is provided herein.
Overview of State and Local Government Funds Under the CARES Act
The CARES Act Corona Virus Relief Fund (the “Fund”) provides at least $1.25 billion to each state. Local governments with a population greater than 500,000 may also apply to receive a payment from the fund. That payment will be made directly to the local government, but the amount of such payment will be subtracted from the total allocation allowed for that state. The fund requires these payments to be made to governments within 30 days of the enactment of the bill, and many states have already received a portion of their allocation.
In addition to the aforementioned funds, the CARES Act provided other funds to state, local, and tribal governments through pre-existing programs, including:
- $25 billion for transit providers for operating and capital expenses, including those owned or run by state and local governments.
- $1.5 billion for economic development grants for states suffering economic injury from the coronavirus.
- $3.5 billion for Child Care and Development Block Grants to states.
- $1.5 billion for local governments particularly for public health preparedness and response.
- $345 million to respond to layoffs from coronavirus for states and local governments.
Guidance for Use of Funds by States and Local Governments
The CARES Act provides that payments from the Fund may only be used to cover costs that:
- Are necessary expenditures incurred due to the public health emergency with respect to COVID-19;
- Were not accounted for in the budget most recently approved as of March 27, 2020, for the state or local government; and
- Were incurred between March 1, 2020 and December 30, 2020.
State and local governments can use these funds for the following purposes:
Necessary expenditures incurred due to the public health emergency
- Expenditures must be used for actions taken to respond to COVID-19
Direct response (i.e. medical and public health needs)
- Second-order effects (i.e. providing economic support to those suffering from unemployment or business interruptions due to COVID-19-related business closures
Expenditure must be “necessary” – Must be “reasonably necessary for its intended use in the reasonable judgment of the government officials responsible for spending Fund payments.”
- A cost or appropriation is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost.
Costs not accounted for in the most recently approved budget as of March 27, 2020
- This requirement is met if:
- the cost cannot lawfully be funded using a line item, allotment, or allocation within that budget; or
- the cost is for a substantially different use from any expected use of funds in such a line item, allotment, or allocation
- The “most recently approved budget” is the enacted budget for the relevant fiscal period, without taking into account subsequent supplemental appropriations enacted or other adjustments made in response to COVID-19.
- A cost is not considered to be “accounted for” because it could be met using a reserve account such as a stabilization fund or a rainy day fund.
Transfer of Funds from a State to Local Governments: States are authorized to transfer funds to a local government, provided that the transfer qualifies as a necessary expenditure incurred due to the public health emergency.
Return/Recoupment of Unspent Funds: The funds must be returned to the Treasury Department if they are not spent to cover costs incurred by December 30, 2020. In addition, Treasury may recoup any funds that are not used in accordance with the provisions of the Act.
Retention of Assets: State and local governments may retain assets purchased with these funds if the purchase of the asset was consistent with the limitations on the eligible use of funds provided above.
Recordkeeping Requirements: A government entity receiving funds must keep records “sufficient to demonstrate that the amount of Fund payments to the Government has been used in accordance with Section 601(d) of the Social Security Act.”
Eligible Expenditures: The following is a non-exhaustive list of expenditures that are permitted with CARES Act funds allocated to state and local governments:
- COVID-19 related expenses of public hospitals, clinics, and similar facilities
- Expenses for establishing temporary public medical facilities related to COVID-19, including construction costs
- Costs of providing COVID-19 testing, including serological testing
- Emergency medical response expenses, including emergency medical transportation related to COVID-19
- Expenses for establishing and operating public telemedicine capabilities for COVID-19 related treatment
- Expenses for communication and enforcement of public health orders related to COVID-19
- Expenses for disinfection of public areas and other facilities
- Expenses for acquisition and distribution of medical and protective supplies for medical personnel, police officers, social workers, child protection services, child welfare officers, direct service providers for older adults and disabled individuals, and other health or safety workers
- Expenses for technical assistance to local authorities or other entities in response to COVID-19
- Expenses for public safety measures undertaken in response to COVID-19
- Expenses for quarantining individuals
- Payroll expenses for public safety, health care, human services, and similar employees whose services are substantially dedicated to mitigating or responding to COVID-19
- Expenses for food delivery to residents
- Expenses to facilitate distance learning
- Expenses to improve telework capabilities for public employees
- Expenses of providing paid sick and paid family and medical leave to public employees to enable compliance with COVID-19 public health precautions
- Sanitation expenses for maintaining state prisons or jails
- Expenses for caring for the homeless to mitigate COVID-19 effects
- Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by closures
- Expenditures related to government payroll support programs
- Unemployment insurance costs related to COVID-19 (if not reimbursed by the federal government)
Ineligible Expenditures: The following is a non-exhaustive list of expenditures that would not be eligible expenditures with CARES Act funds allocated to state and local governments.
- Expenses for the State share of Medicaid
- Damages covered by insurance
- Payroll or benefits expenses for employees whose work duties are not substantially dedicated to mitigating or responding to COVID-19
- Expenses that have been or will be reimbursed under any federal program
- Reimbursement to donors for donated items or services
- Workforce bonuses other than hazard pay or overtime
- Severance pay
- Legal settlements
- Elective abortions or research where the human embryo is destroyed, with exceptions