CARES Act Distribution and its Discontents

August 12, 2020

As state and local governments continue to press Congress for more pandemic recovery funds, disputes are springing up across the country about the disbursement of federal aid that is currently available. A controversy in Illinois has centered on the use of federal relief funds that the State is distributing to counties and municipalities.

Local governments in Illinois are eligible to receive a total of $250 million from the State’s share of the federal Coronavirus Relief Fund. The money can be used to cover localities’ virus-related expenses, but counties and municipalities also want to use the funds to help small businesses in their areas pay for financial losses. Such economic support is allowed under federal guidelines, but the Illinois Department of Commerce and Economic Opportunity (DCEO) had planned to deliver the business grants directly through a separate State program.

On August 11, the dispute landed at the Joint Committee on Administrative Rules (JCAR), the bipartisan legislative body that reviews agency rules. After a brief hearing, JCAR allowed DCEO to proceed with a revised plan that allows counties and municipalities to offer a limited amount of business grants. The Illinois Municipal League issued a statement expressing continued opposition to the proposal, despite the revisions.

As discussed in this blog post, Congress created the $150 billion Coronavirus Relief Fund in late March as part of the CARES Act. The money must be used for pandemic-related costs incurred by states and local governments from March 1 to December 30 of this year and is not available to offset lost tax revenue due to the virus. Unspent money has to be returned to the U.S. Treasury Department. States received at least $1.25 billion each, depending on population, but the only local governments eligible for direct payments from the Treasury were those with more than 500,000 people.

Illinois received a total of $4.9 billion from the Coronavirus Relief Fund. Of that total, $3.5 billion went to the State itself—the largest portion of the total $5.5 billion of federal aid flowing through Illinois’ budget under legislation to address the pandemic. The other $1.4 billion went directly to the City of Chicago and five of Illinois’ 102 counties: Cook, DuPage, Kane, Lake and Will. After receiving their direct payments, the large governments began developing plans to distribute some of their allocations to smaller governments. According to federal directives, any transfers to local governments have to cover eligible expenses; the Treasury will seek repayment from larger governments if transferred funds are spent improperly.

Illinois’ FY2021 budget gave various agencies authority to spend the State’s share of the Coronavirus Relief Fund. For local governments that had not gotten direct federal aid, DCEO received $250 million to be distributed through the Local Coronavirus Urgent Remediation Emergency (Local CURE) Support Program. Another $636 million was appropriated to DCEO for the Business Interruption Grants (BIG) Program for small businesses, including $159 million designated for businesses in the 97 counties that did not receive direct federal aid. (The FY2021 budget appropriated additional Coronavirus Relief Fund money for state agencies’ virus-related expenses, to stabilize the finances of healthcare providers and for rent relief and mortgage assistance for renters and homeowners.)   

After the current fiscal year began on July 1, DCEO issued emergency rules for the Local CURE program, which remain in effect for a set period unless blocked by JCAR. The rules specified that local governments would file claims to receive reimbursement for COVID-19 expenses. Counties and municipalities would receive 80% of the funds, or $200 million, based on population. Average allotments would be $532,000 for 97 counties and $133,000 for about 1,100 cities, villages and towns. Another 5% would go to 87 public health departments based on population and low income population distribution. Other local governments, such as townships and fire protection districts, could receive 8% upon applying for funding. The remaining 7% of funding, or about $17.5 million, would be used for administrative expenses and additional costs incurred by governments in late 2020.

The Illinois Municipal League immediately objected to the program’s rules, citing the ban on business grants, as well as the deadline for filing reimbursement claims, which has since been extended. The Illinois State Association of Counties also expressed opposition, according to statements by JCAR members at a previous meeting on July 14. At that meeting, DCEO said it would too difficult for the agency to monitor as many as 1,100 new grant programs, putting the State at financial risk if funds were not used properly. However, several lawmakers echoed the criticisms of municipalities and counties and said they would likely block the rules if changes were not made.

DCEO’s revised program sets aside $15 million of the remaining Local CURE funds for business grants administered by counties and municipalities. Local governments will seek State reimbursement after the grants are awarded. In addition, up to $15 million of any unspent funds from the original $200 million allotment to counties and municipalities will also be used for business grants. DCEO officials said this approach reduces the State’s financial risk and is fairer to less wealthy counties and municipalities because it prioritizes emergency costs faced by governments.

The Illinois Municipal League remains opposed to the limitation on small business grants by local governments, asserting that the restriction might cause federal funds to go unused and that the new grant plan creates administrative burdens and financial risks for municipal governments. Despite the continued opposition, DCEO hopes to begin sending out relief checks to local governments by the end of August.