Frequently Asked Questions on the State and Local Government Impact of COVID-19

May 18, 2020 | Article

As COVID-19 continues to impact much of the way organizations function, there are many questions surrounding what the next steps are for state and local governments. We’ve compiled common questions we’ve received in relation to compliance, relief and other items impacting governments.

We’ve developed resources to help you make sense of COVID-19 organizational impacts.

If we decide to implement GASB 84 in FY2020 and the Blue Book is not updated regarding fiduciary activities, will this be an issue?
It's not an issue. Your government is ahead of the game and can implement GASB-84 on a timely basis. GFOA is in the middle of updating its Blue Book. They had hoped to release it in time for the annual conference in May. But with the conference going virtual, the COVID-19 issues and the GASB activities, the timing of the blue book may be adjusted. By the way, the Blue Book has been completely rewritten and references the GASB Codification (no longer specific standards except those that have not been implemented.)

How do we know how much money is being distributed to the states for the public schools?
Per the latest posting at U.S. DOE the relief fund is $13.5 billion for elementary and secondary out of $30.75 billion total for educational stabilization. Per the posting, U.S. DOE will award these grants to state education agencies (SEA) based on a formula stipulated in the legislation. Grants shall be allocated to each state in the same proportion as each state received under part A of title I of the ESEA of 1965 in the most recent fiscal year. The district should reach out to California CDE or their proportion.

What does this mean for meeting federal requirements as it pertains to employees completing PARS? Are they still required to be completing them?
M20-17 has given each awarding agency the ability to make modifications to the requirements. However, each agency is handling it differently. We would recommend that you ask your awarding agency directly and include your auditors in any correspondence.

Are there recommendations for jurisdictions to conduct year-end inventory or fixed asset stewardship when many employees are not on site or sites are closed?There are a few options that can be discussed. Is there an opportunity for one to two employees to go on site to complete the observation procedures with the auditor through the use of technology? If not, the count could be postponed and done when the sites are open again. In that case, adequate records are key to be able to roll back the observation date to the year-end date and account for any activity during that time.

How about charter schools running as 501(c)3 nonprofit organizations? Are they eligible for tax credit reimbursement under the Families First Act? Yes, nonprofit organizations established as a 501c(3) can be reimbursed through a refundable tax credit, applied against the employer portion of payroll taxes, at the end of each quarter. This legislation is heavily tied to existing employment laws with the Department of Labor. Nonprofits may need to consult with experts who specialize in employee benefit issues.

Do governments need to pay the employer portion of FICA for the Families First Act?
From what we understand, the current provision under Section 7005 of the FFCRA waives the requirement for employers to pay the employer Social Security tax (6.2%) imposed under IRC Section 3111(a). The employer is still required to pay the 1.45% portion of the FICA tax that represents the portion for Medicare benefits imposed under IRC Section 3111(b).

Section 7005 of the Families First Act does not appear to differentiate between employers or impose restrictions that exclude governmental entities. With that said, a governmental employer required to pay FFCRA leave wages would be eligible to exclude payment of the 6.2% FICA tax on those wages paid; this does not apply to wages paid in excess of the leave requirements. The credits related to the FFCRA are for the wages paid and for the 1.45% Medicare tax; both of which governmental employers are not eligible for.

At this time our recommendation would be for the client to contact an individual versed in employment law to assist them with these provisions.

Are state and local governments considered employers when it comes to the CARES Act?
State and local government employers and employees are treated the same as private employers and employees with respect to the additional $600 per week Federal Pandemic Unemployment Compensation payment (FPUCP) that is provided under the CARES Act. Section 2104 of the CARES Act provides this payment to any employee that otherwise qualifies, without regard to whether the individual is an employee of a state or local government or a private employer.

And, unlike the situation with paid leave, state and local employers are not required to bear the burden of the additional unemployment payments. Generally, state and local government employers do not pay unemployment taxes. Instead, they reimburse the unemployment fund for amounts distributed to their former employees. Sections 2103 and 2104 of the CARES Act specifically dedicate an amount equal to the $600 per week FPUCP payment to reimburse the state or local employer.

The FPUCP benefits, under enacted legislation, will end after July 31, 2020. However, there could be some concern if a laid-off employee is offered their job back and the employee doesn’t accept the offer or otherwise refuses to go back to work. The Treasury Department has issued a Frequently Asked Question that basically says an employee who rejects an offer for re-employment may forfeit their eligibility for continued unemployment compensation. Therefore, employers, including state and local governmental employers, should maintain written documentation of any re-employment offers and require the acceptance or rejection of such offers to be in writing and maintained in the employer’s files.

Government agencies are mandated to provide coverage under ESPLA and EFMLA but will not be reimbursed from federal government since it is in the form of a tax credit. So, costs are borne by the government agency solely?
That is correct.

Do governments have to return unspent Coronavirus Relief Funds to the U.S. Treasury?
Yes. Section 5001(a) of the CARES Act provides for recoupment by the inspector general of the Department of the Treasury of amounts received from the Coronavirus Relief Fund that have not been used in a manner consistent with section 601(d) of the Social Security Act. If a government has not used funds it has received to cover costs that were incurred by December 30, 2020, as required by the statute, those funds must be returned to the U.S. Treasury.

May a state receiving a payment from the CARES Act Coronavirus Relief Fund transfer funds to a local government?
Yes, if the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria of section 601(d) of the Social Security Act. Such funds would be subject to recoupment by the U.S. Treasury inspector general if they have not been used in a manner consistent with section 601(d) of the Social Security Act.

May governments retain assets purchased with these funds, such as equipment?
Yes, if the purchase of the asset was consistent with the limitations on the eligible use of funds.

What records must be kept by governments receiving payment?
A government should keep records sufficient to demonstrate that the amount of fund payments to the government has been used in accordance with section 601(d) of the Social Security Act.

What are eligible costs that a government may claim under the CARES act?
The CARES Act provides that payments from the fund may only be used to cover costs that:

  1. Are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19).
  2. 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.
  3. Were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.

Subject to those provisions, eligible expenditures include payment for (per U.S. Treasury):

  1. Medical expenses such as:
    • COVID-19-related expenses of public hospitals, clinics, and similar facilities.
    • Expenses of establishing temporary public medical facilities and other measures to increase COVID-19 treatment capacity, including related construction costs.
    • Costs of providing COVID-19 testing, including serological testing.
    • Emergency medical response expenses, including emergency medical transportation, related to COVID-19.
    • Expenses for establishing and operating public telemedicine capabilities for COVID-19 related treatment.
  2. Public health expenses such as:
    • Expenses for communication and enforcement by state, territorial, local, and tribal governments of public health orders related to COVID-19.
    • Expenses for acquisition and distribution of medical and protective supplies, including sanitizing products and personal protective equipment, for medical personnel, police officers, social workers, child protection services, and child welfare officers, direct service providers for older adults and individuals with disabilities in community settings, and other public health or safety workers in connection with the COVID-19 public health emergency.
    • Expenses for disinfection of public areas and other facilities, e.g., nursing homes, in response to the COVID-19 public health emergency.
    • Expenses for technical assistance to local authorities or other entities on mitigation of COVID-19 related threats to public health and safety.
    • Expenses for public safety measures undertaken in response to COVID-19.
    • Expenses for quarantining individuals.
  3. Payroll expenses for public safety, public health, healthcare, human services, and similar employees whose services are substantially dedicated to mitigating or responding to the COVID-19 public health emergency.
  4. Expenses of actions to facilitate compliance with COVID-19 related public health measures, such as:
    • Expenses for food delivery to residents, including, for example, senior citizens and other vulnerable populations, to enable compliance with COVID-19 public health precautions.
    • Expenses to facilitate distance learning, including technological improvements, in connection with school closings to enable compliance with COVID-19 precautions.
    • Expenses to improve telework capabilities for public employees to enable compliance with COVID-19 public health precautions.
    • Expenses of providing paid sick and paid family and medical leave to public employees to enable compliance with COVID-19 public health precautions.
    • COVID-19 related expenses of maintaining state prisons and county jails, including as relates to sanitation and improvement of social distancing measures, to enable compliance with COVID-19 public health precautions.
    • Expenses for care for homeless populations provided to mitigate COVID-19 effects and enable compliance with COVID-19 public health precautions.
  5. Expenses associated with the provision of economic support in connection with the COVID-19 public health emergency, such as:
    • Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures.
    • Expenditures related to a State, territorial, local, or Tribal government payroll support program.
    • Unemployment insurance costs related to the COVID-19 public health emergency if such costs will not be reimbursed by the federal government pursuant to the CARES Act or otherwise.
  6. Any other COVID-19 related expenses reasonably necessary to the function of government that satisfy the fund’s eligibility criteria.

What are some ineligible expenses per the U.S. Treasury?

  1. For states, their share of Medicaid
  2. Damages covered by insurance
  3. Payroll or benefits expenses for employees whose work duties are not substantially dedicated to mitigating or responding to the COVID-19 public health emergency
  4. 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.
  5. Reimbursement to donors for donated items or services.
  6. Workforce bonuses other than hazard pay or overtime.
  7. Severance pay
  8. Legal settlements.

Understanding the Options for Your Government
There are still a number of questions when it comes to COVID-19 relief provisions, funding and more. It’s important to understand what is available to governments and what level of compliance is required.

Have questions on how your government can navigate the COVID-19 crisis and compliance issues?

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