What Municipalities Need To Know About The CARES Act

Fox Rothschild LLP

Fox Rothschild LLP

Although much of the buzz around the CARES Act has been the financial relief it potentially offers to small businesses, states and municipalities could receive the financial assistance under the Act as well through the following avenues: (1) increased funding to grants and agencies; (2) the Coronavirus Relief Fund; and (3) direct loans.

We are still waiting for the Secretary of the Treasury to flesh out many of the specifics through the rule making process, but in the meantime, here’s what municipalities need to know.

Increased Funding to New and Existing Grants and Agencies

The Act increases funding to a variety of grants and existing agencies including:

  • Childcare and development block grant
    grants of federal funds to states for subsidizing childcare for low-income families
  • Community development block grants
    grants for state and local programs promoting infrastructure, economic development projects, public facilities installation, community centers, housing rehabilitation, public services, clearance and acquisition, microenterprise assistance, etc.
  • Emergency solutions grants
    grants to those facing a housing crisis
  • Public health and social services emergency fund
    funds to reimburse eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus
  • Education stabilization fund
    funds created to support K-12 and higher education

State and local agencies and programming that are already receiving federal funds through existing grant programs will likely see an increase in available funding. It’s not clear whether grantees who currently receive grant funding will automatically receive additional funds, or if additional application procedures will be put in place to take advantage of the increased funding.

New funding programs will be delivered primarily through state-level programs with certain sub-allocations directed to local-level agencies. States will need to submit an application to the Secretary of the Treasury to request funds from newly established grant programs. If a state’s application is approved, the funds from newly established grant program will be distributed from the federal government to the state-level government, and then from the state-level government to the local-level governments and agencies for deployment. It’s unclear what the application process will be, if any, for local-level governments and agencies to take advantage of these funds.

Coronavirus Relief Fund

  • The Act provides $150 billion for state, local, and tribal governments to cover costs incurred between March 1, 2020 and December 30, 2020 due to COVID-19. Approximately $8 billion has been set aside for distribution to tribal governments, and approximately $3 billion has been reserved for U.S. territories and the District of Columbia. It’s important to note that only costs that were not accounted for in the applicant government entity’s most recent budget are eligible for coverage.
  • States will receive an allocated portion of funds to distribute based on each state’s population, but each state is guaranteed at least $1.25 billion regardless of such state’s population.
  • Local government units (e.g., cities, counties, etc.) with populations of 500,000 or more are also eligible for funds.
  • Up to 45 percent of the amount allocated to a state can go directly to local governments with populations that exceed 500,000.

The example below illustrates the interaction between state and local government funding.

Example: A total of $2 billion is allocated to a state with a population of 10 million, 3 million of whom live in one of five counties that each holds 500,000 or more people. Under these facts, $600 million would be associated with the five-county population. These five counties could claim 45 percent ($270 million) of the $600 million allocated to this five-county population. The state would retain the remaining 55 percent ($330 million).
The remaining 7 million people in the state live outside of any unit of local government (e.g., city, county, etc.) having a population of 500,000 or more people. Thus, $1.4 billion will be associated with this share of the state’s population, and 100 percent of this $1.4 billion would be retained by the state government for this portion of the state’s population.

  • Qualifying local agencies that would like to receive funds will need to submit a certification to the state or local government to which the applications is submitted signed by the chief executive that outlines the proposed uses of the funds. Additionally, there will be overlap for cities having 500,000 or more people that are located in counties having 500,000 or more people. Specifics on this overlap are still being discussed.

4003(b)(4) Loan Program

The Act sets aside $454 billion for financial programs to assist eligible businesses, states and municipalities. We are still waiting for many of the specifics concerning the 4003(b)(4) programs. The Secretary of the Treasury must provide an opportunity for the Federal Reserve to implement a program for direct loans to states and municipalities on favorable terms, but such loans will not be subject to loan forgiveness.

  • States and municipalities (defined as any political subdivision of a state, and any instrumentality of a municipality, a state, or a political subdivision of a state) will qualify for these direct loans. We expect additional details from the Secretary of the Treasury in the coming days regarding the application process.

[View source.]

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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