Summary of CARES Act State and Local Government Relief Provisions

On March 27, 2020, the President signed into law the U.S. government’s Phase 3 aid package to provide relief due to the novel coronavirus (“COVID-19”) through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  The CARES Act authorizes approximately $2 trillion in federal stimulus funds to combat the crisis.  This includes a number of programs to address the issues that states and local governments are facing as they work to protect their communities during this challenging time.

Coronavirus Relief Fund

The heart of the CARES Act’s aid to state and local governments is the $150 billion Coronavirus Relief Fund.¹  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.

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.
• Payments to the states from the remaining $139 billion will be in amounts equal to the relative population proportion amount of that state against the total population of all states (excluding the District of Columbia and territories covered above), with a minimum payment of $1.25 billion to each state.
• 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 payment, a local government must provide the Treasury Secretary with a certificate signed by its chief executive stating that the local government’s proposed uses of the funds are consistent with the allowed purposes.
• If a local government receives such a direct payment, then the Treasury Secretary will reduce the amount determined for its State by the amount determined 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 funds have not been used for the allowed purposes, that amount will be converted to a debt that government owed to the federal government.

Unemployment Insurance Relief

Taking into account the rapid increase in unemployment due to COVID-19, the CARES Act provides for federal reimbursement for half of the amounts paid by the states for unemployment benefits through December 31, 2020.²  These amounts will be transferred to the states, which in turn must use the funds exclusively to reimburse governmental entities and other organizations for amounts paid to the state unemployment fund.  States that choose to pay recipients as soon as they become unemployed (rather than waiting one week for eligibility) will receive an additional full reimbursement for those first week payments through December 31, 2020.³  States may also choose to enter into agreements with the Department of Labor through which the federal government will provide, during that period, an additional 13 weeks of unemployment benefits after the state’s unemployment benefits are no longer available.⁴

The CARES Act additionally provides strong support to short-time compensation programs, where employers reduce hours instead of laying off workers and the employees’ unemployment benefits are reduced pro rata for the hours they continue to work.  States that have or enact such programs in law will receive full reimbursement for the amounts paid for short-time compensation through December 31, 2020.⁵  States that do not have such a program in law but wish to temporarily institute one may do so by agreement with the HUD Secretary; these states will receive 50% reimbursement.⁶  Additionally, the CARES Act provides $100 million in grants to help states implement or improve the administration of these programs, as well as promote and enroll employers in the programs, and directs the Labor Secretary to publish model legislative language and provide states assistance with respect to establishing these programs.⁷

To address the pressures on staffing for processing unemployment claims, temporary flexibility was included to allow states to make hiring decisions on a merit basis (rather than employer experience ratings) through December 31, 2020, for the purpose of engaging temporary staff, rehiring retirees or former employees on a non-competitive basis, and taking other temporary actions to quickly process applications and claims.⁸

Transportation

The CARES Act provides an appropriation to the Federal Transit Administration for $25 billion in Transit Infrastructure Grants.  The Transportation Secretary will provide and apportion these funds as if they were public transportation formula grants.  These funds are to be apportioned not later than seven days after the date of enactment using the fiscal year 2020 apportionment formulas for such grants.  Among other things, these funds will be available for the operating expenses of transit agencies related to the response to the COVID-19 emergency, including the purchase of personal protective equipment and paying the administrative leave of operations personnel due to service reductions.  The requirements of Chapter 53 of Title 49 of the U.S. Code (related to public transportation), including labor standards requirements, will generally apply to these grants, except that the federal share of costs shall be up to 100% at the option of the recipient.⁹

The CARES Act contains a number of other infrastructure and transportation provisions that will help states and local governments, including relief to states for their share of the cost of state-supported Amtrak routes and grants in aid for airports, which are generally publicly owned.¹⁰

Children and Families

The CARES Act includes $6.3 billion to various relief efforts through the Administration for Children and Families, with such funds available through September 30, 2021, including the following affecting state and local governments:¹¹

• $3.5 billion to the Child Care and Development Block Grant to allow states to provide continued payments and assistance to child care providers in the case of decreased enrollment or closures related to COVID-19 and to assure they are able to remain open or reopen.  States are encouraged to include conditions to their payments that ensure providers use a portion of the funds received to pay the salaries of wages and staff.  These funds may also be used to provide child care assistance to healthcare employees, emergency responders, sanitation workers and other workers deemed essential in response to COVID-19.
• $1 billion to the Community Services Block Grant to combat poverty and provide social services and activities to low-income individuals and families.  These funds will be distributed to the states, which in turn will distribute most of their funds as grants to community organizations.  If an entity receives any of these funds and do not expend them, the funds will remain with the entity for carryover into the next two fiscal years to be expended consistent with the program’s purpose.  The CARES Act additionally provides a tweak to the Community Services Block Grant Act for services furnished under the act during fiscal years 2020 and 2021 to allow states the option to define the poverty line as 200% of the official poverty line.¹²
• $900 million in Low Income Home Energy Assistance grants, to be provided to the states to help low-income households affected by COVID-19 that pay a high proportion of household income for home energy.
• $750 million is reserved for payments to programs under the Head Start Act.  These funds are intended to be used in part to operate supplemental summer programs to help reduce the effects of school closures on learning opportunities.
• $45 million will be available to the states for child welfare services under the Stephanie Tubbs Jones Child Welfare Services Program, with any matching requirement waived.
• $45 million of additional Family Violence Prevention and Services formula grants will be available for the states to prevent domestic violence and provide shelter and support to victims, with any matching requirement waived.
• $25 million of additional funding for programs receiving funding under the Runaway and Homeless Youth Act, with any matching requirement waived.

Education

The CARES Act also includes an appropriation of over $30 billion to the Department of Education to provide relief to states, school districts, and higher education institutions coping with the effects of COVID-19, to be available through September 30, 2021.¹³  This amount includes the following:

• Approximately $300 million for grants to states with the highest COVID-19 burden.  The Education Secretary will invite applications for these grants no later than 30 days after the date of enactment and approve or deny the applications within 30 days after receipt.
• Approximately $3 billion to make Emergency Education Relief grants to the governor of each state with an approved application.  The Education Secretary will invite applications for these grants no later than 30 days after the date of enactment and approve or deny the applications within 30 days after receipt.  The amount of the grant for a given state will be determined 60% on the basis of its relative population of school-aged individuals (ages 5-24) and 40% on the basis of its relative children counted under Section 1124(c) of the Elementary and Secondary Education Act of 1965 (“ESEA”).¹⁴  These funds will be used to provide emergency support through grants to local education agencies, higher education institutions, and other education-related entities that the state deems most affected by COVID-19.  Any funds a state receives but does not award in grants within one year of receiving such funds shall be returned to the Education Secretary for reallocation to the remaining states.
• Approximately $13 billion for elementary and secondary school emergency relief grants to each state educational agency with an approved application, to be allocated in the same proportion the states received basic grants under ESEA in the most recent fiscal year.  The Education Secretary will invite applications for these grants no later than 30 days after the date of enactment and approve or deny the applications within 30 days after receipt.  The states must allocate not less than 90% of the amount they receive as subgrants to local educational agencies in the proportion those entities received funds under ESEA in the most recent fiscal year.  These funds may be used for a number of COVID-19 and more general purposes, including broad authorization to use the funds for any activity authorized by ESEA.  Any funds a state receives but does not award in grants within one year of receiving such funds shall be returned to the Education Secretary for reallocation to the remaining states.
• Approximately $14 billion for a relief fund for higher education.  90% of the funds will be distributed among each higher education institution, apportioned 75% according to each institution’s relative share of full-time equivalent enrollment of Pell Grant recipients and 25% according to its relative share of full-time equivalent enrollment of students who were not Pell Grant recipients.  The remaining funds will be used for additional awards for minority serving institutions and institutions the Education Secretary determines have the greatest unmet needs related to COVID-19.  These funds are generally to be used by the institutions to cover costs associated with significant changes to the delivery of instruction due to COVID-19; at least 50% of the funds are to be used for emergency financial aid grants to students for expenses related to the crisis.

Local educational agencies receiving these funds must provide equitable services to students and teachers in non-public schools.  Any agency, state, institution of higher education, or other entity receiving these funds must, to the greatest extent practicable, continue to pay its employees and contractors during the period of any disruptions or closures related to COVID-19.

In addition to the funds described above, an additional $100 million was appropriated to Project SERV (School Emergency Response to Violence), to provide additional funds to help elementary, secondary, and post-secondary schools pay for cleaning and disinfecting affected schools, counselling, and distance learning.

Federal Reserve Loans, Loan Guarantees, and Investments

To provide liquidity to the financial system that supports lending to eligible businesses, states or municipalities, the CARES Act provides the Federal Reserve System $454 billion to purchase debt obligations, including government-issued securities, and make loans.¹⁵  The Treasury Secretary is also directed to “endeavour to seek the implementation of a program or facility . . . that provides liquidity to the financial system that supports lending to States and municipalities.”¹⁶  Any loans provided to a state or local government will not be able to be reduced through loan forgiveness.¹⁷

Other Programs

The CARES Act also provides for a number of other programs that provide relief to states and local governments, including the following:

• FEMA Disaster Relief Fund: $45 billion was included to provide additional funds to FEMA’s support activities covered by the agency’s Disaster Relief Fund, including reimbursements to states and local governments under emergency and major disaster declarations.¹⁸
• Housing and Urban Development: $17.4 billion was included for the Department of Housing and Urban Development.  This amount includes the following:¹⁹
• $5 billion in Community Development Block Grant funds, up to $2 billion of which will be distributed using the formula used for such funding in fiscal year 2020, $1 billion of which will be allocated directly to states and insular areas, and the remainder of which will distributed directly to states or units of local government that the HUD Secretary deems most at risk from COVID-19;
• $4 billion to Homeless Assistance Grants for the purpose of fighting COVID-19 among the homeless, with up to $2 billion of the funds distributed to states and local governments using the formula used for such grants in fiscal year 2020 and the remainder to be distributed by a formula to be determined by the HUD Secretary that allocates the amounts to areas with the greatest need;
• $1.25 billion for tenant-based rental assistance (including $850 million for public housing agencies for their Section 8 programs);
• $685 million to provide additional operating funds for public housing agencies; and
• $65 million for the Housing Opportunities for Persons with AIDS (HOPWA) program.
• CDC Support: $4.3 billion was included for CDC activities and program support.²⁰  Of that amount, not less than $1.5 billion is to be used for grants to or cooperative agreements with states, localities, and other entities to carry out surveillance, epidemiology, laboratory capacity, infection control, mitigation, communications, and other preparedness and response activities.  Any grantee that received a Public Health Emergency Preparedness grant for fiscal year 2019 will receive not less than 100% of that grant amount from these funds.  This amount is in addition to the $950 million provided for state and local needs in the federal government’s Phase 1 response.²¹
• Economic Development Assistance Programs: $1.5 billion was included for the Department of Commerce to distribute as economic adjustment assistance to eligible recipients under Section 209 of the Public Works and Economic Development Act of 1965, which includes state and local governments.²²
• State and Local Law Enforcement Assistance: $850 million was made available to assist state and local law enforcement with their needs related to COVID-19, including overtime pay for officers, personal protective equipment and supplies, and medical needs and supplies for inmates in state and local facilities.²³  These funds will be awarded through the formula allocation used in fiscal year 2019 for the Edward Byrne Memorial Justice Assistant Grant program under the Omnibus Crime Control and Safe Streets Act of 1968.²⁴
• Election Security Grants: $400 million is appropriated for grants by the Election Assistance Commission to help states address COVID-19-related challenges affecting the 2020 federal election, to be paid within 30 days after the date of enactment.  Within 20 days of each election in the 2020 federal cycle in a state, the state must submit to the commission a report within 20 days of the election that includes a report of how that state’s uses of the payments allowed it to prevent, prepare for, and respond to COVID-19.  Any amount that is unobligated on December 31, 2020 must be returned to the Treasury.²⁵
• Dislocated Worker National Reserve: $345 million was included to bolster the Department of Labor’s Dislocated Worker National Reserve, to allow states and communities to respond to COVID-19’s impact on workforce and layoffs.²⁶
• Veterans Affairs: $150 million was appropriated as grants for the construction of state extended care facilities for veterans, to be used for COVID-19-related purposes, including modifying or altering existing hospital, nursing home, and domiciliary facilities in state homes.  Additionally, the Department of Veterans Affairs, during the course of the COVID-19 emergency, will continue to pay state homes per diem payments (regardless of whether they meet the occupancy rate or veteran percentage requirements), as well as provide state homes with medicines, personal protective equipment, medical supplies, and other assistance.²⁷
• National Endowments for the Arts and the Humanities: An aggregate of $150 million was appropriated for the National Endowments for the Arts and the Humanities, 40% of which is to be distributed to state arts agencies, regional arts organizations, and state humanities councils.²⁸
• Museum and Library Services Grants: $50 million was appropriated to the Institute of Museum and Library Services for purposes including grants to states to expand digital network access, purchase internet accessible devices, and provide technical support services.²⁹

This summary of the State and Local impacts of the CARES Act is part of an evolving COVID-19 response that is moving across regulatory agencies.  For information on other regulatory developments related to the pandemic, please visit our COVID-19 Portal.