We are continuing our analysis of last week’s $2.2 Trillion CARES Act.
$150 Billion State and Local Stabilization Fund – About $139 billion will be distributed to the states, for their own use (55%) and for redistribution to ‘qualifying’ local governments (45%). These funds can only be used to fund extraordinary costs caused by COVID-19. These must be costs over and above funding included in each entity’s current operating budget. They cannot be used to cover revenues not collected, as a result of the financial impact of the Coronavirus on taxpayers.
The State of New Jersey is slated to receive $3.444 billion. Of that total, a minimum of $1.894 billion is earmarked for State use. The balance, $1.550 billion, COULD be distributed to ‘qualifying’ local government.
Questions regarding ‘qualified’ local governments have created uncertainty. Specifically, Section 601(d), provides:
“A State, Tribal government, and unit of local government shall use the funds provided under a payment made under this section to cover only those costs of the State, Tribal government, or unit of local government that:
(1) are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID-19).
And, Section 601(g)(2) of the CARES Act states:
“LOCAL GOVERNMENT—The term ‘unit of local government’ means a county, municipality, town, township, village, parish, borough, or other unit of general government below the State level with a population that exceeds 500,000.”
The particular issue is whether the prepositional phrase “with a population that exceeds 500,000” modifies all the political subdivisions listed (a county, municipality, town, township, village, parish, borough, or other unit of general government below the State level) or modifies only the political subdivision immediately preceding it, “other unit of general government below the State level.”
The issue is important because it determines which political subdivisions are entitled to receive direct funding under the Coronavirus Relief Fund in Section 601.
Our partners at the National League of Cities (NLC) have launched an effort to secure CARES Act funding for all COVID-19 impacted municipalities, regardless of size. NLC Executive Director Clarence Anthony has written to U.S. Treasurer Steve Mnuchin requesting a favorable interpretation of the new law.
Federal Departments and agencies are currently at work developing procedures for funding distributions and application advice for provisions subject to an application process. We will keep you posted.
For information on other components of this massive bill, see our March 25, 2020, CARES Act Preliminary Snapshot.