Treasury FAQ Addresses Questions on CRF Payments
State and local governments receiving payments under the Department of the Treasury’s Coronavirus Relief Fund (CRF) should be aware that they are not required to spend other federal funding first on emergency public health needs prior to using CRF dollars, Treasury explained in a recent Frequently Asked Questions (FAQ) document.
“Fund payments are not required to be used as the source of funding of last resort,” according to the FAQ. “However, … recipients may not use payments from the fund to cover expenditures for which they will receive reimbursement” from other sources.
Section 5001 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136) added Section 601(a)(1) to the Social Security Act to provide $150 billion for Treasury to make payments to states (including the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands and American Samoa), tribal governments and eligible local governments with more than 500,000 residents.
The CARES Act also added Section 601(d) to the Social Security Act, which requires that these recipients use the funds received to cover only those costs that: (1) are necessary expenditures incurred due to the public health emergency with respect to COVID-19; (2) were not accounted for in the budget most recently approved as of March 27 for the state or government; and (3) were incurred during the period from March 1 to Dec. 30.
Although Treasury issued general CRF guidance in April, recipients continued to have questions about managing the funds, which led to the issuance of the FAQ. The FAQ noted that recipients are not required to submit proposed expenditures to Treasury for approval, and that “governments are responsible for making determinations as to what expenditures are necessary due to the public health emergency with respect to COVID-19.”
While Treasury’s April guidance stated that funds can be used to meet payroll expenses for public safety, public health, health care, human services and similar employees whose services are “substantially dedicated” to mitigating or responding to the COVID-19 public health emergency, a question in the FAQ asked how Treasury determines whether payroll expenses for a given employee satisfy the “substantially dedicated” condition.
Treasury responded to say that the CRF is designed to “provide ready funding to address unforeseen financial needs and risks” created by the COVID-19 public health emergency. Therefore, recipients “may presume that payroll costs for public health and public safety employees are payments for services substantially dedicated to mitigating or responding to the COVID-19 public health emergency, unless the chief executive (or equivalent) of the relevant government determines that specific circumstances indicate otherwise.”
Transfer of Funds
In questions related to the transfer of CRF funds, Treasury stated that states receiving CRF payments may transfer funds to a local government, provided that the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria under the act. Local governments receiving CRF funds also may transfer funds to another unit of government (e.g., a country can transfer funds to a city within the county) provided that the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria under the act. However, a transfer from a county to a city within the county would not be allowable if the funds were intended to be used simply to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify as an eligible expenditure.
In response to a question asking whether recipients were allowed to combine a transaction supported with CRF payments with other CARES Act funding or COVID-19 relief federal funding, Treasury simply said that recipients “will need to consider the applicable restrictions and limitations of such other sources of funding. In addition, expenses that have been or will be reimbursed under any federal program, such as the reimbursement by the federal government pursuant to the CARES Act of contributions by states to state unemployment funds, are not eligible uses of fund payments.”
Other Uses of Funds
Treasury explained that CRF payments generally could not be used for capital improvement projects that could provide potential economic development to a community. However, these payments may be used to cover expenses for establishing temporary public medical facilities and other measures to increase COVID-19 treatment capacity or improve mitigation measures, including related construction costs.
The FAQ emphasized that CRF payments may not be used for government revenue replacement, including the provision of assistance to meet tax obligations or the replacement of unpaid utility fees. However, CRF payments may be used for subsidy payments to electricity account holders if they are deemed by the recipient to be necessary expenditures incurred due to the COVID-19 public health emergency and meet the other criteria under the act. For example, if determined to be a necessary expenditure, a government could provide grants to individuals facing economic hardship to allow them to pay their utility fees and thereby continue to receive essential services.
Assisting Businesses, Homeless
While Treasury’s April guidance explained that eligible expenditures may include those related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures, one question asked how “small businesses” should be defined. The FAQ simply responded that governments have the discretion to determine what payments are necessary, adding that a program that is aimed at assisting small businesses with the costs of business interruptions caused by required closures should be tailored to assist those businesses in need of such assistance.
In addition, in response to a question asking if providing a consumer grant program to prevent eviction and assist in preventing homelessness would be an eligible expense, Treasury replied that the expense would be eligible, assuming that the recipient considers the grants to be a necessary expense incurred due to the COVID-19 public health emergency and the grants meet the other requirements for the use of CRF payments. “As a general matter, providing assistance to recipients to enable them to meet property tax requirements would not be an eligible use of funds, but exceptions may be made in the case of assistance designed to prevent foreclosures,” Treasury added.
In response to questions pertaining to the administration of CRF funds, the FAQ stated that governments receiving CRF payments should keep records sufficient to demonstrate that the amount of funding received was used in compliance with CRF requirements. Recipients also may deposit CRF payments into interest bearing accounts, provided that if they separately invest amounts received from the fund, they must use the interest earned or other proceeds of these investments only to cover eligible CRF expenditures.
If a government deposits CRF payments in its general account, it may use those funds to meet immediate cash management needs provided that the full amount of the payment is used to cover necessary expenditures. Fund payments are not subject to the Cash Management Improvement Act of 1990, as amended (Pub. L. 101-453) (see ¶344 in the Federal Grants Management Handbook). In addition, governments may retain assets purchased with CRF payments if the asset was purchased as an eligible use of CRF funds.
For More Information
The FAQ is available at https://home.treasury.gov/system/files/136/Coronavirus-Relief-Fund-Frequently-Asked-Questions.pdf.
More information about the CRF, including the amount allocated to recipients, is available at https://home.treasury.gov/policy-issues/cares/state-and-local-governments.