Federal Update – Support Needed for Add’l Local Government Relief

Posted on April 10, 2020 by Dene Westbrook

In working with our partners at the National League of Cities, there has been a flurry of activity this week on the implementation efforts surrounding the recently passed CARES act and new federal proposals to address some of the shortcomings for local governments within the federal stimulus efforts and promoting significant additional federal stimulus investments.

While nothing has been agreed upon for new additional federal spending, momentum appears to be growing for an expansion of the small business Payroll Protection Program (increasing spending from the current $350M to $600M) and coupling that expanded small business support with a significant additional boost in support for state and local governments (increase of a proposed $150B).  Speaker Pelosi and Senate Minority Leader Schumer are leading the charge on this negotiation for improved support for state and local governments, insisting that any swift action to increase small business spending be coupled with the additional state and local support.  The current $150B Coronavirus Relief Fund included in the CARES act is still awaiting some key guidance to be issued by Treasury to clarify eligible expenses that states and local governments can claim under that fund and these federal dollars are not scheduled to be released to the states until April 24th.

Also this week, Representatives Neguse (CO-2), Levin (MI-9), Luján (NM-3) and Malinowski (NJ-7) introduced the Coronavirus Community Relief Act (H.R. 6467), a bill to provide $250 billion in funding to all local governments with fewer than 500,000 residents.  The CARES Act only provided the 36 largest cities in the nation with access to direct federal aid. This bill creates a path to receive direct federal aid for the other 99.82 percent of municipalities that were shut out of the CARES Act.

In addition to providing a separate $250 billion fund, the Neguse/Levin/Luján bill makes three significant improvements on the CARES Act.
First, the Coronavirus Community Relief Act allows units of local government to use allocated funds to cover losses. Section 601 of the CARES Act restricts use of funds to cover “necessary expenditures.” Cities, towns, and villages will need federal assistance to persevere through the hardship resulting from rising costs and decreasing tax revenue and fees due to COVID-19. This change from the CARES Act will help local communities deal with revenue shortfalls that will happen as a result of the COVID-19 crisis.

Second, the Coronavirus Community Relief Act provides the necessary flexibility on how allocated funds can be used. If one city needs more funds that it is allocated while another city does not need all of its allocated funds, funds can be reallocated among cities within a state to ensure funds are put their best use. This is a change from the CARES Act.

Third, the Coronavirus Community Relief Act changes the rule regarding when a city, town, or village must certify in order to receive funds. Instead of placing a burdensome “shot clock” by which cities, towns, and villages must apply, this legislation allows more time for an applicant to request funds. Smaller cities and towns are facing unprecedented challenges and could be facing layoffs. In this environment, a “shot clock” to apply puts unneeded pressure on smaller communities in crisis.

Michigan Municipal League members are urged to contact their Member of Congress to urge them to support and co-sponsor this important piece of legislation to support local governments in Michigan.  While HR 6467 has already been introduced, cosponsors can still sign on to the bill by reaching out to Bo Morris in the office of Rep. Joe Neguse at [email protected].

NLC is also working closely with House member Brad Schneider of Illinois, John Katko of New York, and T.J. Cox of California, on a bill to provide tax credits to governmental employers who provide paid sick leave and paid emergency family leave under the Families First Coronavirus Response Act (FFCRA). Please also include this piece of legislation in your conversations with your Members of Congress and urge them to contact Jessica Bernton ([email protected]) with Rep. Schneider, IL to sign on. The deadline is Monday, April 13th at noon for co-sponsors for this bill.
An additional measure within the CARES act was also kicked off this week by the Federal Reserve.  According to NLC, the Federal Reserve announced it would purchase $500 billion of short-term notes (less than 2 years in maturity) under  the Municipal Liquidity Facility designed to provide direct access to all States, cities with a population of greater than one million residents (10 cities), and counties with more than two million residents (15 counties). Territories are excluded.

The primary purpose of this facility is to aid the cash crunch that many states will feel from Congress pushing back the tax filing deadline to July 15th. However, the second enumerated use for the eligible use of proceeds says that these funds can be used for “potential reductions of tax and other revenues or increases in expenses related to or resulting from the COVID-19 pandemic.”  While on its surface, the liquidity facility may only appear to be available to 75 Eligible Issuers-the 10 largest cities, 15 counties, and 50 states, however, the final line of the eligible use of proceeds says that “Eligible Issuer may use the proceeds of the notes purchased by the [fund] to purchase similar notes issued by, or otherwise to assist, political subdivisions and instrumentalities of the relevant State, City, or County for the purposes enumerated in the prior sentence.” Allowing states to purchase notes from their own political subdivisions makes the distribution of funds more efficient.  The Federal Reserve did not issue a start date for the facility, but the purchasing will cease on September 30, 2020.

The League is working with our partners at the Michigan Department of Treasury to investigate implementation of this new program and many other programs created within the CARES act that could benefit municipalities during this pandemic.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and [email protected].

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