CARES Act Provides Economic Relief for State and Local Governments

April 08, 2020
By: David B. Caughran and Ronald T. Scott

The Coronavirus (COVID-19) pandemic has significantly impacted state and local governments across the United States. The additional service demands placed upon law enforcement, first responders and emergency services personnel will likely last for several months. Along with the increased demand for essential government services, the national economic decline is likely to have great impact on state and local government budgets.
 

Realizing the impact of the Coronavirus pandemic, the federal government appropriated funding for state and local governments in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law by President Donald J. Trump on March 27, 2020. The CARES Act establishes a Coronavirus Relief Fund to ease the financial burden on state and local governments in responding to the public health emergency. These emergency federal resources provide flexibility to state and local governments as they grapple to respond to emerging service needs for their communities and citizens.

The CARES Act also provides funding primarily in the form of grants, loans, loan guarantees and other investments.

What can state and local governments do now?

  1. Identify current government expenditures incurred due to the Coronavirus pandemic
  2. Identify anticipated ongoing government expenditures related to the Coronavirus pandemic
  3. Identify projected revenue shortfalls that may impact ongoing government operations in the current or upcoming fiscal year
  4. Prepare an emergency response plan to include ongoing service needs and costs associated with responding to the Coronavirus pandemic at least through the end of the 2020 calendar year

Read below for more detailed information about funding available for state and local governments through the CARES Act. Please contact your HSB attorney, David Caughran or Ron Scott with any questions.

Key Provisions of the CARES Act for State and Local Government Entities

Several provisions in the CARES Act provide economic and programmatic assistance for local governments as they work to address the needs of their communities affected by the COVID-19 pandemic. Of note, the Coronavirus Economic Stabilization Act of 2020, found in Title IV, Subtitle A of the CARES Act, provides $500 billion in economic assistance to distressed sectors of the economy, including local governments, primarily through loans, loan guarantees and other investments. Additionally, Title V of the CARES Act establishes a $150 billion Coronavirus Relief Fund $150 billion for state, local and tribal governments to offset “necessary expenditures” incurred in responding to the public health emergency. Below are summaries of those two major provisions as well as additional provisions that may be of interest to local government entities.  

Sec. 4003: Emergency Relief and Taxpayer Protections

Section 4003 of the Coronavirus Economic Stabilization Act of 2020 (the “Stabilization Act”) found in Title IV, subtitle A of the CARES Act, establishes and authorizes up to $500 billion in loans, loan guarantees and other investments to support eligible businesses, states or municipalities “related to losses incurred as a result of coronavirus.” Under the Stabilization Act, a “municipality” includes a political subdivision of a State, and an instrumentality of a municipality, a state or a political subdivision.

Of particular note, the Stabilization Act authorizes up to $454 billion for use in loans and loan guarantees, and other investments in programs or facilities established by the Board of Governors of the Federal Reserve “for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, States, or municipalities”, by:

  1. Purchasing obligations or other interests directly from issuers of those obligations or interests;

  2. Purchasing obligations or other interests in secondary markets or otherwise; or

  3. Making loans, including loans or other advances secured by collateral.

The Stabilization Act provides the Secretary of the Treasury broad discretion to determine the form, terms and conditions of any such loans, loan guarantees or other investments in the Federal Reserve programs. Additionally, while the Stabilization Act prohibits loan forgiveness for the principal amount of any obligation issued by an eligible business, state or municipality, any interest rate determined by the Secretary shall be limited “based on the risk and the current average yield on outstanding marketable obligations of the United States of comparable maturity.”

Lending facilities for states and municipalities, as well as the medium-sized business and non-profit lending program, are authorized but not required to be established by the Secretary. For example, with regard to state and local governments the Stabilization Act simply requires the Secretary “seek to endeavor to implement a facility that provides liquidity to the financial system that supports lending to States and municipalities.”

More information regarding these Federal Reserve liquidity programs, loan options and specifics regarding the application process was not provided in the CARES Act and has yet to be released.

Sec. 5001: Coronavirus Relief Fund

Section 5001, found in Title V of the CARES Act, establishes a Coronavirus Relief Fund (the “Relief Fund”) and authorizes $150 billion for state, local and tribal governments for “necessary expenditures” incurred in responding to the coronavirus outbreak. There is no specific definition of “necessary expenditures,” and state, local and tribal governments will have discretion to determine their respective needs. 

The Relief Fund allocates $139 billion to the state and local governments, $3 billion for Washington, D.C. and the U.S. territories of Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands and American Samoa, and $8 billion for tribal governments. Each state will be allocated a minimum of $1.25 billion in emergency funding. The state of South Carolina is estimated to receive approximately $1.996 billion in emergency funding from the Relief Fund.

The Relief Fund authorizes expenditures for costs that:

  1. are necessary expenditures incurred due to the Coronavirus, and

  2. were not accounted for in the budget most recently approved prior to the enactment of the CARES Act, and

  3. were incurred between March 1, 2020 and December 30, 2020.

Local government will not receive a direct allocation from the Coronavirus Relief Fund unless they have a population exceeding 500,000, as verified by data from the U.S. Census Bureau. Greenville County is the only local government in South Carolina expected to qualify for a direct allocation from the Relief Fund. Local governments with populations exceeding 500,000 may apply directly to the U.S. Treasury Department for their allocation of funding, and any aid they receive will be subtracted from the amount otherwise provided to their state. In applying for a direction appropriation from the Relief Fund, units of local government must “provide the [U.S. Treasury] Secretary with a certification signed by the Chief Executive for the unit of local government” ensuring that proposed uses of the funds conform to the requirements of the CARES Act. In states with no city or county having a population exceeding 500,000 people, the state government will receive the entire allocation under the Coronavirus Relief Fund. States will have authority to decide on how they will designate their Relief Fund allocations, potentially including allocations for local governments that did not qualify for a direct allocation from the Relief Fund.

The CARES Act provides that direct allocations from the Relief Fund must be made to governments within 30 days of enactment. The CARES Act also establishes an inspector general to monitor the disbursement and use of relief funding to units of government and gives the inspector general the authority to recoup any misused funds.

Additional Provisions of Note in the CARES Act for Local Governments

  • $1.5 billion for the Economic Development Administration (EDA) to "help revitalize local communities after the pandemic." EDA assistance can be used to help rebuild impacted industries such as tourism or manufacturing, capitalize local funds to provide low-interest loans to businesses, and support other locally-identified priorities for economic recovery. (Title II, page 230).

  • $850 million for the Byrne-Justice Assistance Grant Program (Byrne-JAG). Byrne-JAG will allow state and local police departments and jails to meet local needs, including purchase of personal protective equipment and other needed medical items and to support overtime for officers on the front lines. (Title II, page 233).

  • $45 billion for a Disaster Relief Fund to provide for the immediate needs of state, local, tribal, and territorial governments to protect citizens and help them recover from the overwhelming effects of COVID-19. (Title VI, page 263).

  • $100 million in Emergency Management Performance Grants for state, local, territorial and tribal governments to support coordination, communications, and logistics. (Title VI, page 264).

  • Provides $150 million to the National Endowment for the Arts and Humanities for state arts and humanities agencies to provide grants and support arts organizations, museums, libraries, and other organizations during the coronavirus crisis. (Title VII, page 272).

  • $1.5 billion to the Centers for Disease Control and Prevention to support States, local governments, territories and tribes in their efforts to conduct public health activities, including: Purchase of personal protective equipment; surveillance for coronavirus; laboratory testing to detect positive cases; contact tracing to identify additional cases; infection control and mitigation at the local level to prevent the spread of the virus; and other public health preparedness and response activities. (Title VIII, page 274).

  • $30.750 billion to the Department of Education for an Education Stabilization Fund for states, school districts and institutions of higher education for costs related to coronavirus. Title VIII, page 284).

    • $13.5 billion is available for formula-grants to States, which will then distribute 90 percent of funds to local educational agencies to use for coronavirus-response activities, such as planning for and coordinating during long-term school closures; purchasing educational technology to support online learning for all students served by the local educational agency; and additional activities authorized by federal elementary and secondary education laws.

    • $3 billion to Governors to allocate at their discretion for emergency support grants to local educational agencies that the State educational agency deems have been most significantly impacted by coronavirus. These funds will support the ability of such local educational agencies to continue to provide educational services to their students and to support the on-going operations of the local educational agency.

    • $14.250 for higher education emergency relief for institutions of higher education to prevent, prepare for, and respond to coronavirus.

  • $5 billion is provided for the Community Development Fund to enable states, counties, and cities to rapidly respond to COVID-19 and the economic and housing impacts caused by the pandemic. $2 billion will be allocated to states and units of local governments that received an allocation under the fiscal year 2020 CDBG formula, an additional $1 billion goes to states to support a coordinated response across entitlement and non-entitlement communities, and $2 billion is allocated to states and units of local government, cities and counties based on the prevalence and risk of COVID-19 and related economic and housing disruption. (Title XII, page 326). 

Authored By:
David B. Caughran   
Ronald T. Scott