The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides a number of financial assistance resources for state and local governments due to the COVID-19 pandemic. Below is a summary of two such provisions — one providing for an emergency lending program to be overseen by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the other establishing a Coronavirus Relief Fund through the Treasury Department.
Emergency Relief to States and Municipalities through Federal Reserve Programs and Facilities
The CARES Act allocates $454 billion for the purpose of making loans, loan guarantees and other investments in programs or facilities established by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) to support eligible businesses, states and municipalities (including political subdivisions of a state and instrumentalities of a municipality, a state or a political subdivision of a state). The program will be governed by the emergency lending provisions of Section 13(3) of the Federal Reserve Act. Specifically, the Secretary of the Treasury (the “Secretary”) is authorized to (i) purchase obligations or other interests directly from issuers of such obligations or other interests; (ii) purchase obligations or other interests in secondary markets or otherwise; or (iii) make loans, including loans or other advances secured by collateral.
The Secretary has authority to determine the terms and conditions for the program, including interest rates based on the risk and the current average yield on outstanding Treasury obligations of comparable maturity. Significantly, the principal amount of any obligation issued by an eligible business, state or municipality to the Federal Reserve in connection with this program may not be reduced through loan forgiveness. In addition, the authority granted under the CARES Act to make new loans, loan guarantees or other investments under this program expires on December 31, 2020. Loans, loan guarantees and other investments under the program that are outstanding as of such date, however, may be modified, restructured or amended (but not forgiven, as noted above).
Industry organizations have suggested ways for the Federal Reserve to implement the program, including: (i) creating a temporary Municipal Securities Purchasing Facility to facilitate the Secretary’s purchase of municipal securities in the secondary market, from all types of issuers with a diverse array of credit ratings and terms; and (ii) creating a temporary Bridge Lending Facility, through which the Federal Reserve or conduit banks would provide loans to state and local governments experiencing financing gaps due to delayed revenues. Under the CARES Act, procedures for application and minimum requirements for the program were due from the Treasury Department by April 6th—ten days from the date of enactment of the CARES Act, but the process has not been announced yet.
COVID-19 Relief Fund for States and Local Governments
The CARES Act also allocates $150 billion in direct aid for COVID-19-related expenses to states, tribal governments and units of local government with a population in excess of 500,000. Of this amount, $3 billion is reserved for making payments to the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa and $8 billion is reserved for making payments to tribal governments.
The bulk of the funding would be allocated to the states using a population-based proportionate formula; provided, that no state would receive less than $1.25 billion. Local governments with a population in excess of 500,000 are eligible to receive up to 45% of a state’s share, based on the local government’s pro rata share of the total state population. Qualifying local governments can apply directly to the Treasury Department for such funding. Otherwise, local governments with populations of 500,000 or less must work with their respective states to access funding.
The uses of funds are limited to costs that (i) are necessary expenditures incurred due to COVID-19; (ii) were not accounted for in the budget most recently-approved as of the date of enactment of the CARES Act; and (iii) were incurred during the period of March 1, 2020 through and including December 30, 2020.
Funds under this program will be available for distribution to states, tribal governments and local governments meeting the population threshold discussed above not later than 30 days after the date of enactment of the CARES Act, which was March 27, 2020.
 The CARES Act defines an “eligible business” as either an air carrier or a United States business that has not otherwise received adequate economic relief in the form of loans or loan guarantees provided under the CARES Act.