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US Treasury Releases Guidance on Eligible Uses for CARES Act Funding

Posted on April 23, 2020 by Dene Westbrook

Late Wednesday night, the National League of Cities federal advocacy team received word from the US Treasury that the long-awaited guidance on the eligible uses for the $150 billion Coronavirus Relief Fund, included in the larger CARES Act stimulus package, had been released.

This federal guidance is critical for determining how states and local governments will be able to utilize this important tranche of funding.  Michigan was allocated approximately $3.87 billion of this relief fund and the Michigan Municipal League has been advocating for the State of Michigan to dedicate a portion of the state’s allocation to cover eligible local government costs related to the COVID-19 pandemic.

According to the NLC staff review of this new guidance, here are the top takeaways:

  • A state can transfer payments to local governments provided the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria of section 601(d).
  • Governments do have to return unused funds to the Department of the Treasury if they are not used by December 30, 2020.
  • Funds may be used to respond directly to the emergency as well as respond to second-order effects of the emergency, such as by providing economic support to those suffering from unemployment or business interruptions due to COVID-19-related business closures.
  • The statute says that an expenditure must be “necessary.” Treasury interpreted this term to mean reasonably necessary for its intended use in the reasonable judgment of the government officials responsible for spending Fund payments.
  • Funds may not be used to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify under the statute. Many uses of funds are allowed, but revenue replacement is not one.
  • The CARES Act also requires that payments be used only to cover costs that were not accounted for in the budget most recently approved as of March 27, 2020. The “most recently approved” budget refers to the enacted budget for the relevant fiscal period for the particular government, without taking into account subsequent supplemental appropriations enacted or other budgetary adjustments made by that government in response to the COVID-19 public health emergency.
  • Treasury provides a long, nonexclusive list of examples of eligible expenditures.
    • Payroll expenses for public safety, public health, health care, human services, and similar employees whose services are substantially dedicated to mitigating or responding to the COVID19 public health emergency.
    • Expenses of providing paid sick and paid family and medical leave to public employees to enable compliance with COVID-19 public health precautions.
    • Expenditures related to a State, territorial, local, or Tribal government payroll support program.
    • Expenses for public safety measures undertaken in response to COVID-19.
  • Nonexclusive examples of ineligible expenditures:
    • 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 the COVID-19 public health emergency.
    • Expenses that have been or will be reimbursed under any federal program, such as the reimbursement by the federal government pursuant to the CARES Act of contributions by States to State unemployment funds.
    • Reimbursement to donors for donated items or services.
    • Workforce bonuses other than hazard pay or overtime.
    • Severance pay.
    • Legal settlements.

The MML continues to work with our partners at NLC to advocate for direct federal aid to all local units of government and to provide flexibility in the funding to cover revenue shortfalls related to the abrupt shutdown of the economy.  While the current interim stimulus bill being adopted this week in Congress did not include these provisions, we are encouraged by House and Senate Democratic leaders who remain committed to pursuing state and local funding within a broader fourth stimulus bill, expected to be negotiated over the next month.

While the President signaled support for additional state and local support, Senate Majority Leader McConnell called for pushing the “pause button” for state and local funding. “I think this whole business of additional assistance for state and local governments need[s] to be thoroughly evaluated.” McConnell went on to condition any further aid to state and local governments on making sure it’s COVID-19-related.  McConnell said that he will examine not only “if we do state and local,” but added he would also oversee how state and local governments will spend funds.  Speaking with the media on Wednesday, McConnell said “We’re not interested in solving their pension problems for them,” he told Fox’s Bill Hemmer. “We’re not interested in rescuing them from bad decisions they’ve made in the past, we’re not going to let them take advantage of this pandemic to solve a lot of problems that they created themselves themselves and bad decisions in the past.”

League members are urged to continue contacting their Member of Congress to support direct aid to local governments and refute the Senate Majority Leader’s comments.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and chackbarth@mml.org.

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