On April 22, 2020, The US Department of the Treasury (Treasury) issued additional guidance and a frequently asked questions (FAQs) document to advise organizations seeking relief through the Coronavirus Aid, Relief, and Economic Security (CARES) Act on the permitted use and allowed expenses of funds received.
An overview of the Coronavirus Relief Fund (CRF) guidance and FAQs and their impact on government entities follows.
The CRF Guidance for State, Territorial, Local, and Tribal Governments intends to assist local governments in evaluating organizations that can access CRF resources directly and what expenditures can be considered allowed under the requirements of Title V of the CARES Act.
Permitted Uses of Funds
The guidance clarifies what costs are permissible under the CRF, noting that necessary expenditures incurred due to the public health emergency:
- Must be used for actions taken to respond directly to the COVID-19 public health emergency
- May include expenditures incurred to address medical or public health needs, as well as to respond to second-order effects of the emergency, such as providing economic support to those suffering from employment or business interruptions
- Can’t be used to fill shortfalls in government revenue to cover expenditures that wouldn’t otherwise qualify under the statute
Only certain costs not accounted for in the government’s budget most recently approved as of March 27, 2020 are permitted. Costs will, however, meet the above requirement if the cost:
- Can’t lawfully be funded using a line item, allotment, or allocation with that budget
- Is for a substantially different use from any expected use of funds in such a line item, allotment, or allocation
A cost isn’t considered to have been accounted for in a budget merely because it could be paid from a budgetary stabilization fund, rainy day fund, or similar reserve account.
Considerations for Governments
The guidance doesn’t define or provide additional detail to help determine when a budget requirement would prohibit a cost from being funded. However, local governments that adopt lawfully-binding budgets that restrict fund deficits could meet the requirement and allow CRF funds to reimburse costs that were originally budgeted in one fund to be paid out of another fund.
For example, if your budget ordinance restricts the ability to incur a fund deficit—and there’s now a significant decline in the revenues received to finance a fund’s activities—those costs might be allowed under CRF.
It’s important to note, however, that such costs would still need to meet the other criteria in the CARES Act to be permissible.
Additional guidance will be necessary to assist local governments that don’t adopt a lawfully binding budget or only adopt budgets for certain funds or departments.
Eligible and Ineligible Expenditures
Expenditures that are eligible for the CRF include:
- Medical expenses
- Public health expenses
- Payroll expenses for public safety, public health, health care, human services, and similar employees whose services are substantially dedicated to mitigating or responding to COVID-19
- Expenses incurred to facilitate compliance with COVID-19-related public health measures such as food delivery, distance learning, telework, paid sick and family and medical leave, maintaining jails, and caring for homeless populations
- Expenses associated with the provision of economic support in connection with COVID-19, such as grants to small businesses to reimburse the costs of business interruption caused by required closures, payroll support programs, and unemployment insurance costs that aren’t otherwise reimbursed by the federal government
Expenditures that aren’t eligible for the CRF include:
- Damages covered by insurance
- Payroll or benefits expenses for employees whose work duties aren’t substantially dedicated to mitigating or responding to the COVID-19 public health emergency
- Expenses reimbursed under any federal program
- Workforce bonuses other than hazard pay or overtime
- Severance pay
- Legal settlements
Impact to Governments
Fortunately, the guidance appears to allow broad flexibility to determine the appropriate use of payments received from the CRF. However, the guidance indicates that only the costs of employees directly responding to the public health emergency are considered eligible payroll costs.
This means other employees likely won’t be determined to be substantially dedicated to mitigating or responding to the public health emergency.
Many employees—such as finance staff—probably spend significant amounts of time assisting the local government’s response. However, if such activities are performed in addition to the employees’ normal functions, the activities likely won’t meet the requirement above.
Access to CRF Resources
Unfortunately for the majority of local governments, only those with populations in excess of 500,000 can directly receive an allotment from the CRF.
Presumably, local governments that don’t meet that requirement would still have access through resources allotted to their respective states.
It’s likely local governments will need to work through their state representatives and staff at certain state agencies to determine any funding that could be available to them, as well as how to apply.
The FAQs document addresses questions for the following areas:
- Unspent Funds. Funds that aren’t used must be returned to the Treasury.
- Fund Transfers. States are allowed to transfer funds to a local government under certain circumstances.
- Purchased Assets. Assets purchased with CRF may be retained by the government.
- Record-Keeping. Sufficient records should be retained to demonstrate that the amounts incurred were in accordance with the guidance noted above.
As local governments review these guidelines and begin to formulate their plans to expend payments received from the CRF, there will be additional areas the Treasury will need to clarify.
New questions that arise from the above guidelines, include:
- What definition should be used for a small business?
- What are allowable economic support costs?
We’re Here to Help
We’ll continue to monitor the CARES Act impact to governmental entities as additional guidelines and notices are finalized. To learn more about how your governmental entity can receive relief from the CARES Act, contact your Moss Adams professional.
Note on COVID-19
During this unparalleled time, we’re closely monitoring the COVID-19 situation as it evolves so we can provide up-to-date guidance and support to help you combat uncertainty. For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: