COVID-19 Relief Package Provides Substantial Aid to States, Counties and Cities

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Best Best & Krieger LLP

$1.9 Trillion COVID-19 Federal Relief Package – American Rescue Plan Act

Today, President Biden signed into law a $1.9 trillion COVID-19 relief package, the American Rescue Plan of 2021, aimed to provide financial relief to Americans and incentives to stimulate the economy as a result of the COVID-19 pandemic. The latest package is expansive in scope, including spending for federal unemployment benefits, state and local aid, provisions for school reopenings, tax credits for employers and families, another round of direct payment for Americans and an expansion of vaccinations and virus-testing programs. This relief package may be the last package to focus on immediate financial relief provisions. Subsequent packages will be long-term and aimed toward economic recovery and rebuilding infrastructure.

State and Local Aid
The package includes nearly $360 billion in aid for state, local, tribal and territorial governments. Unlike previous COVID-19 relief measures, this package provides direct financial assistance to previously excluded smaller cities, counties and municipalities. Significantly, the aid may be used to mitigate costs incurred to address the COVID-19 emergency and its economic effects, including: revenue losses, pay for essential workers and investments for water, sewer and broadband infrastructure.

The state and local aid is divided as follows:

  • $195.3 billion for states and Washington, D.C.
  • $65.1 billion for counties
  • $45.6 billion for cities
  • $20 billion for federally recognized tribal governments.
  • $4.5 billion for territories

Local government funding will be dispersed among counties, metropolitan cities and smaller cities and towns with fewer than 50,000 people. Counties will receive $65.1 billion, metropolitan cities (larger cities entitled to receive direct Community Development Block Grants) will receive $45.6 billion and smaller cities and towns will receive $19.5 billion. The U.S. Treasury Department will pay funds directly to counties and metropolitan cities. The funding for smaller cities and towns will be distributed to states, which will then distribute the pre-determined allocations to the local governments and counties. The U.S. House and Senate have provided estimates of how much funding each state, county and city is expected to receive. States, counties and municipalities have authority to transfer the funds to private nonprofit organizations, public benefit transportation corporations and a special-purpose unit of state or local government.

The direct assistant funds to local governments are restrictive as they are to be used to:

  • Respond to or mitigate the public health emergency with respect to COVID-19 or its negative economic impacts, including assistance to households, small businesses and nonprofits;
  • Respond to workers performing essential work during the COVID-19 public emergency, including premium pay for eligible workers of the metropolitan city, nonentitlement unit of local government or county;
  • Cover lost revenue due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year and
  • Make necessary investments in water, sewer or broadband infrastructure.

The city must certify that it requires the federal assistance provided from the legislation to effectively carry out the activities above and that the city intends to use the money received consistent with the criteria above. The Treasury Department is expected to release guidance on what a city will have to show to meet each of the criteria provided for in the legislation.

Tax Credit for Paid Sick and Family Leave
The package extends the paid sick and family leave credits that were created in the Families First Coronavirus Response Act in 2020. The current package extends the credits starting on April 1, through Sept. 30. This package expands the eligibility of the payroll tax credit to include state and local governments and public agencies during that period. The package also increases the family leave credit to $12,000 per worker, which was previously $10,000 per worker.

Water and Wastewater Assistance
Low Income Home Energy Assistance Program: The Act provides $4.5 billion for a rent and utility assistance program administered by the Department of Health and Human Services. Traditionally, LIHEAP funds are distributed to states, and then distributed to grantees, such as community action programs. The distribution of funds varies depending on the state. Applicants can use the financial assistance for rent and utility bills, including water and wastewater.

Water and Wastewater Low-Income Grants: The bill provides $500 million for low-income water and wastewater grants. Funds will be allotted to states and tribes based on percentage of households with income less than 150 percent of the federal poverty line.

Housing Assistance
Emergency Rental Assistance: The Act provides $26 billion for emergency rental assistance, including $21.2 billion allocated by the Treasury Department to states, territories, counties and cities.

Homeless Assistance: The Act provides $4.75 billion to the U.S. Department of Housing and Urban Development through the HOME Investment Partnerships program formula. Sixty percent of HOME funds are distributed to metropolitan cities and larger counties.

Housing Choice Vouchers: The Act also provides $5 billion to HUD for emergency Housing Choice Vouchers.

Other Provisions
Education: The measure will provide $122.8 billion for grants to states for local education agencies to remain available until Sept. 30, 2023. To mitigate education losses in the past year, 20 percent of the funds are to be used to summer learning, afterschool programs and extended school year programs.

Unemployment Benefits: The package includes $300 a week in federal unemployment benefits through Sept. 6. The first $10,200 in unemployment benefits are tax-free in 2020 for households making less than $150,000 a year.

Direct Payments: Individuals and households will receive another round of direct payments: $1,400 for an individual, $2,800 for joint filers and $1,400 for each qualifying dependent. Dependents include full-time students under 24 years old.

Paycheck Protection Program: The Small Business Administration’s successful Paycheck Protection Program, created in the CARES Act, will receive an increase of $7.25 billion in lending authority, now totaling $813.7 billion.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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