The CARES Act established the Coronavirus Relief Fund which is to be used to make payments to States, local and tribal governments and US territories. There have been a lot of questions about what governments can spend these funds on. Per section 5001 of the CARES Act, the costs that the funds may cover must meet three criteria that we are going to briefly review here.

1. The costs are necessary expenditures incurred due to the public health emergency with respect to COVID-19.

The two key items here are “necessary” and “due to the public health emergency”. The Department of the Treasury noted in their guidance that “necessary” is understood broadly, to mean reasonably necessary for its intended use using reasonable judgment.

The “due to the public health emergency” means that the costs have to be incurred to respond to the emergency. Some examples of these costs would include items such as the following:

• Medical expenses such as those related to expanding COVID-19 treatment capacity, testing sites and related costs, and emergency medical transportation related to COVID-19 (i.e. ambulance costs).
• Public health expenses such as communication and enforcement of public health orders, acquisition, and distribution of medical and protective supplies, disinfection of public spaces and other facilities, contact tracing expenses, quarantine expenses, etc.
• Payroll expenses for public safety, public health, healthcare, etc. whose services are substantially dedicated to mitigating or responding to the COVID-19 pandemic.
• Costs to comply with public health measures such as food delivery to residents, costs to facilitate distance learning for schools, and expenses to care for the homeless population.
• To provide economic support in connection with COVID-19 such as providing grants to small businesses that have been forced to close or assistance to individuals and families to prevent eviction.

One important item to note here is that the funds cannot be used to replace revenue shortfalls of the government. One example provided is that the government cannot apply funds to customer utility accounts as this would be replacing revenues. The government could provide grants to individuals facing economic hardship to allow them to pay their utility fees so they may continue to receive essential services. In addition, providing assistance to individuals to make property tax payments are also not considered to be eligible expenditures due to the revenue replacement rule but exceptions may be made in cases of assistance to avoid foreclosure.

2. The costs were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government.

To meet this requirement the cost cannot lawfully be funded using a line item within the budget or the cost is for a substantially different use from any expected use of funds in such a line item. This raises a question in regards to some of the allowable costs. For example public safety wages. In response to a question on allowable costs, the Treasury Department stated that “as a matter of administrative convenience, governments 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.” This appears to contradict the “not accounted for” criteria, as most governments have budgeted for public safety wages.  This expense becomes allowable when you take into account the “or the cost is for a substantially different use” statement. So, for example, in your budget, you have public safety wages for traffic officers. If the traffic officer is still doing traffic enforcement, then it would not be an allowable expense. But, if the traffic officer has been reassigned for public health/quarantine enforcement, the officer’s wages are an allowable expense. Please take into account that this is our opinion based on our research and you would want to confirm this with the Treasury Department before proceeding.

3. The costs were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.

According to the Treasury Department guidance, funds must be expended during this time frame to be eligible.

An additional item to keep in mind is that these funds need to be included in your annual Schedule of Expenditures of Federal Awards and must be identified separately. Fund payments are subject to the following requirements in the Uniform Guidance (2 C.F.R. Part 200): 2 C.F.R. § 200.303 regarding internal controls, 2 C.F.R. §§ 200.330 through 200.332 regarding sub-recipient monitoring and management, and subpart F regarding audit requirements.