The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed by the President on March 27, 2020 to provide relief and combat the crisis due to the COVID-19 pandemic. This Act includes a number of provisions and funding specific to local and state governments in order to protect their communities during this challenging period.
Potential Funding Opportunities
Economic Stabilization Fund
The CARES Act creates a $454 billion Economic Stabilization Fund that authorizes the U.S. Treasury to purchase obligations or other interests in secondary markets, or otherwise of states and political subdivisions. This permits the Federal Reserve to participate as an institutional investor in securities that mature in greater than six months in the event that is necessary to stabilize the bond market. Government participants may take part as well as a program or facility that provides liquidity to the financial system that supports lending to states and municipalities. Further guidance is expected to be available soon.
Coronavirus Relief Fund
A total of $150 billion will be allocated to each state. Localities with greater than 500,000 population can generally provide certification to the federal government and state to receive direct funding. Otherwise, amounts will be distributed to states based upon population with an estimated 45% of the amount allotted to each area distributed to the locality from state (state will get 55% for that area).
Local Government Grants
- Department of Housing and Urban Development (“HUD”) — Community Development Block Grant (“CDBG”) to receive a total of $5 billion for services affecting senior citizens, the homeless and public health services.
- Department of Justice (“DOJ”) — $850 million to be distributed to the Byrne Justice Assistance grant program to support state and local law enforcement and jails.
- Department of Health and Human Services (“HHS”)
- The Center for Disease Control’s (“CDC”) State and Local Preparedness Grants to receive $1.5 billion for the rent, lease, purchase, acquisition, construction, alteration or renovation of non-federally owned facilities to improve preparedness and response capability at the state and local level.
- The Community Services Block Grant Program to receive $1 billion for grants to community-based organizations that provide human, social services and emergency assistance.
- Public Health and Social Services Emergency Fund would receive $100 billion for reimbursement or lost revenue related to COVID-19 for eligible health care providers.
- Department of Agriculture — $8.8 billion to be allocated for child nutrition programs.
- Education Stabilization Fund — $30.75 billion to be distributed among states, local schools, higher education institutes and other entities providing educational services impacted by COVID-19.
- Federal Transit Administration — $25 billion allocated in proportion to FY2020 program apportionments. All COVID-19-related operating and capital costs are eligible.
- Federal Aviation Administration — $9.9 billion in total available to commercial airports through the Airport Improvement Program (“AIP”).
Employee Retention
Employee retention credit for employers subject to closure due to COVID-19 is not available to local governments.
Employer Payroll Taxes
This provision allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of OASDI taxes and half of SECA tax liability. This deferral would not be available to any entity receiving assistance through the Paycheck Protection Program (“PPP”) available for small businesses.
Forbearance of Residential Mortgage Loan Payments
This provision provides multi-family borrowers with certain protections and rights for forbearance of loan payments under federally backed residential mortgages (e.g., purchased or securitized by Fannie Mae or Freddie Mac) for residential multi-family properties principally designed for the occupancy of five or more families. In addition, upon receipt of an oral or written request for forbearance from a multi-family borrower, a servicer shall provide a forbearance of up to 90 days. This forbearance is for the principal and interest payments on the loan and the CARES Act does not address a forbearance period on property taxes.
Future Stimulus Plans
With its $2 trillion in stimulus provision, the CARES Act covers a lot of ground, but communities hoping for new bond financing programs to assist in their recovery will have to wait for additional action by Congress. Several bond-related items that have been discussed as important stimulus considerations are not included in the CARES Act, and constituency groups are hoping to see these included in the fourth (or fifth) round of stimulus legislation.
Recommendations
While the CARES Act does not cover the vast majority local government debt payments, we recommend that the local government confirm that debt payments are made on a timely basis. We further recommend that the local governments keep in touch with their bond counsel and other outside professionals for matters relating to covenants, various disclosure matters and managing their debt portfolio. In addition, the Act nor the IRS has not suspended the responsibilities that local governments have to calculate federal arbitrage, yield restrictions, and adhere to private use regulations related to tax-exempt bond issuances.
Considerations of the GASB
The Governmental Accounting Standards Board (“GASB”) has announced it has added a project to its current technical agenda to consider postponing all statements, most notably, those pronouncements include Statement No. 84, Fiduciary Activities, and Statement No. 87, Leases, as well as their related implementation guides, provisions with an effective date that begins on or after reporting periods beginning after June 15, 2018. The Board plans to consider an Exposure Draft for issuance during its April 14 teleconference and finalize the guidance during its May 26 teleconference. Keep an eye on the GASB website for further developments.
We will continue to monitor developments and share updates related to the CARES Act. If you have further questions, please contact us.
