70 percent of relief funds have already been obligated, only 10 percent to local governments, leaving small communities behind.
Despite recent assertions to the contrary, information provided by the Treasury Department coupled with the latest data from national organizations representing state and local governments show that an overwhelming majority of CARES Act funds allocated for state and local governments (70%) have already been obligated and are not available for municipalities struggling to address unprecedented budgetary challenges. Most concerning, small cities and rural areas have been left out of the process entirely and, without an additional influx of direct aid from the federal government, are at serious risk of having their local economies wiped out. Overall, the funding provided thus far is not nearly sufficient to meet the critical needs of cities, which are facing a projected $360 billion revenue shortfall over the next three years as a result of the pandemic.
On July 30, 2020 the U.S. Treasury Department Office of Inspector General published an Interim Report of Costs Incurred by State and Local Recipients through June 30. The report, while a welcome measure of transparency from the Administration, provides an incomplete picture of state and local efforts. The report provides an important snap-shot of “costs incurred” for Coronavirus Relief Fund (CRF)-eligible expenditures for emergency assistance, equipment, and personnel through the end of June. The uneven figures reflect both progress and setbacks across the country in containing the spread of coronavirus, and the uncertainty resulting from “rolling guidance” from the Administration, the most recent of which was published on June 30th. Importantly, the report does not reflect the increase of activity and new costs incurred for assistance to local governments through the month of July.
More recent data provided by the National Association of State Budget Officers, the National Governors Association, the National Conference of State Legislatures show that more than 70 percent of CARES Act Coronavirus Relief Funds have already been obligated for expenditure between now and the end of the year. At the same time, data collected by NLC and state municipal leagues show that only approximately 10 percent of funds have been obligated for aid to local governments.
The Treasury OIG report on costs incurred, taken together with state government reports on obligated funds, is a red flag that shows the opposite of funding availability under the CARES Act. Rather, with less than 30 percent of unobligated funds remaining, they show that the modest amount of funds available for small local governments is running out.
Local leaders continue to be hampered by uncertainty and confusion from Congress over how, or even whether, to meet the urgent need for new federal aid for local governments. There is no question that additional federal intervention is warranted. As a result of the challenging fiscal conditions resulting from COVID-19 and the unanticipated costs of shuttering and reopening communities and small businesses, the National League of Cities estimates local budget shortfalls of over $360 billion between 2020 and 2022, with $134 billion in revenue losses for 2020 alone. Unfortunately, the CARES Act prohibited expenditure of emergency aid to cover revenue shortfalls. And with CRF funds mostly obligated, well-intentioned efforts to retroactively lift that prohibition are now too little, too late.
Cities and towns are essential for jump-starting the economy. By providing the permits and approvals for both commercial, educational, and public services, cities and towns are the primary gate through which a safe and efficient re-opening will occur. Reduced revenues and personnel will only make this process more difficult, placing a significant and easily avoidable drag on re-opening efforts nationwide. This is precisely why now is the time for Congress to approve additional aid for local governments.
If Congress fails to reach a bipartisan agreement that includes federal aid for local governments, beyond the additional flexibility for expenditures from the Coronavirus Relief Fund, there is no question that the very cities, towns, and villages that have helped ensure stability throughout this crisis, even as their revenue base has declined, will go from being an essential part of America’s recovery to becoming a serious drag on it.
NLC is continuing to monitor how federal grant dollars, including CRF, are being awarded to municipalities, and how this funding is helping cities respond to the COVID-19 pandemic.
Background on State Coronavirus Relief Funds Obligated to Local Governments
The CARES Act was signed into law on March 27, 2020, creating the Coronavirus Relief Fund (CRF), a $150 billion emergency assistance fund for states, territories, tribes, and local governments to purchase protective equipment and improve efforts to contain the spread of coronavirus. Of the 19,000 cities, towns, and villages in the United States, only 36 municipalities, each with more than 500,000 residents, were provided direct assistance under the CARES Act CRF. Specifically, the 36 municipalities with populations over 500,000 received about $7.9 billion of the $150 billion. As a result, the majority of the 19,000 municipalities below the 500,000 population threshold were excluded from a guaranteed minimum level of assistance.
NLC raised the alarm in May that more than half the states were still withholding CARES Act aid for small local governments. Thanks to renewed oversight spurred by Congressman Kevin Brady (R-TX), between June and July of this year the majority of hold-out states have obligated CARES Act funding to local governments.
As of July 31, 2020, three states have not obligated CRF funding specifically for emergency aid to small local governments:
- New Jersey
- New York
- Rhode Island
Another six states are only providing access to county governments with no requirements to assist municipal governments:
- North Carolina
There is little consistency in how local governments with populations under 500,000 may access the Coronavirus Relief Funding from the states. Forty-seven states have authorized or are working on legislation to transfer some of the CRF funding to local governments. As of July 17, the total amount of state CRF funds that local governments (municipal and county) with populations under 500,000 have received is approximately $13.8 billion.
The interactive map below shows states that are working to allocate funds to local governments.
Local Governments Need A New Lifeline
Local governments across the nation are in urgent need of a new lifeline to prevent the interruption of essential operations and services; and to keep emergency responders, sanitation workers, building and repair crews, and others on the job.
The Coronavirus Relief Fund is insufficient to meet to the growing need for support at the local level, and additional federal intervention is warranted. As a result of the challenging fiscal conditions caused by the COVID-19 pandemic and the unanticipated costs of shuttering and reopening communities and small businesses, NLC estimates local budget shortfalls of over $360 billion between 2020 and 2022, with $134 billion in revenue losses for 2020 alone.
Local governments know the federal government cannot make up for every loss of revenue. Instead, they are seeking a critical lifeline to avoid last resort options, such as indefinite cuts to services at a time when communities need them most, permanent layoffs of municipal employees who comprise a large share of America’s middle class and canceling capital projects that will further impact local employment, business contracts and overall investment in the economy. There is a real possibility that the very cities, towns, and villages that have helped ensure stability throughout this crisis, will go from being an essential part of America’s recovery to becoming a serious drag on it.
We stand ready to work together on bicameral, bipartisan legislation that provides fair and appropriate levels of assistance to all cities, towns, and villages while including the kinds of guardrails members of Congress will need to be confident that taxpayer funds are appropriately spent. Right now, the funding that communities are seeing is simply not enough to for local economic recovery.
About the Authors:
David Park is Program Director of NLC’s Center for Municipal Data & Analytics.
Yucel (“u-jel”) Ors is the Legislative Director for Public Safety and Crime Prevention at the National League of Cities. Follow Yucel on Twitter at @nlcpscp.
Michael Wallace is the Legislative Director for Community and Economic Development at the National League of Cities. Follow him on Twitter @.