Municipal Law Group News: CARES Act Assistance for Municipalities

April 15, 2020

By: Kari L. Olson and

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) became law on March 27, 2020. The CARES Act authorizes the provision of debt guarantees, direct loans as well as the direct purchase by the Federal Reserve of state and local government obligations.

Cities and towns are facing higher direct costs responding to the COVID-19 pandemic, increased indirect costs due to changes in the economy and lower revenues as a result of the economic disruption. While the full implications of the pandemic remain unknown, the sudden decline in economic output has significantly altered the financial outlook for state and local governments.

The CARES Act provides the Treasury Secretary with authority to make loans, guarantees and investments in an amount not to exceed $500 billion. $25 billion is allocated to air carriers, $4 billion to cargo air carriers, and $17 billion to businesses critical to maintaining national security. The remaining $454 billion is for eligible businesses, states and municipalities.

Section 4003(b)(4) of the CARES Act Loan Program
What is it?

The CARES Act sets aside $454 billion for financial programs to assist eligible businesses, states, and municipalities (“4003(b)(4) programs”). Very few particulars regarding the 4003(b)(4) programs have been provided other than that the Secretary of the Treasury shall provide the opportunity for the Federal Reserve to implement a program for direct loans to states and municipalities on favorable terms, provided that such loans will not be subject to forgiveness.

Who gets it?

States and municipalities (as well as certain private businesses) will qualify for these direct loans. Under the CARES Act, a municipality includes (i) any political subdivision of a state; and (ii) any instrumentality of a municipality, a state, or a political subdivision of a state. Guidance on how to apply for a loan is forthcoming from the Secretary of the Treasury.

Coronavirus Relief Fund
What is it?

The most relevant piece of the CARES Act for states and municipalities is the $150 billion Coronavirus Relief Fund, which was established though Section 5001 of the CARES Act. This money is to be distributed to states, tribal governments, and local governments with populations exceeding 500,000 to cover necessary expenditures related to COVID-19 that were not accounted for in that government’s budget and are incurred between March 1 and December 30, 2020 (the “Allowed Purposes”).

Distribution amounts are calculated in the following manner:

• $3 billion is reserved for payments to the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa, and $8 billion is reserved for payments to tribal governments.
• There is a minimum payment of $1.25 billion to each state and payments to the states from the remaining $139 billion will be in amounts equal to the population of that state in relation to the total population of all states (excluding the locations covered above).
• Eligible local governments will receive an amount equal to the product of (a) 45% of the payment determined for its state and (b) the amount equal to the quotient of (i) the population of the local government and (ii) the total population of its state. In order to receive a direct payment, the unit of local government must provide the Treasury Secretary with a certification signed by the Chief Executive of the local unit stating that the “local government’s proposed uses of the funds are consistent” with the Allowed Purposes.
• If a local government receives a direct payment, then the Treasury Secretary will reduce the amount determined for its state by the amount to be paid to that local government.

The Department of the Treasury’s Inspector General has oversight and monitoring responsibility over these funds. If the Inspector General determines that the funds have not been used for the Allowed Purposes, that amount will be “booked as a debt of such entity owed to the Federal Government” pursuant to Section 5001 of the CARES Act.

Who gets it?

The Secretary of the Treasury will pay to each state, local, and tribal government their allocation directly on or before April 26, 2020. This table uses the latest available population data, circa July 2019, but the Treasury Department may utilize different figures.

Please contact your Murtha Cullina municipal attorney with further questions. Note that this is part of a series of COVID-19 alerts providing clients with practical advice on navigating these difficult times.

municipal_cares_act_assistance_for_municipalities.pdf

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