Be careful how you spend your department’s CARES funding

The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the Coronavirus Relief Fund and appropriated $150 billion to the fund.

Under the CARES Act, the fund is to be used to make payments for specified uses to states and certain local governments, the District of Columbia and U.S. Territories (consisting of the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, American Samoa and the Commonwealth of the Northern Mariana Islands), and tribal governments.

Municipal governments and fire and EMS agencies were elated when Congress passed this legislation. They felt that the CARES Act financial assistance would help to balance shortfalls in revenues from lost taxes and a lack of fundraising activities due to COVID-19 restrictions. Yes, the federal assistance does provide additional funding to states and local governments as well as other agencies that are helping to address the current public health emergency, but as with all government financial assistance, it comes with several “warning labels” for grantees.

Always read the guidance document

As I have mentioned several times in the past, always read the grant guidance document before you take any actions. This is particularly important when it comes to dealing with CARES funding. The first “warning label” is found in the second paragraph of the guidance document:

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

As I read point #2 above, any item that is included under your 2020 agency budget is not eligible to be covered by CARES funding unless the expenditure was directly related to the health emergency. For example, you may have a line item for disposable PPE in your budget, but you expended far more than that amount because of the pandemic. That should be an allowable expense. I think paying higher utility bills because you had additional crews in station becomes more difficult to defend to an auditor.

On a lighter note, point #3 also gives me pause because, to put it simply, why aren’t we allowed to include Dec. 31? Isn’t that the last day of the year?

Related to point #1, the guidance document states: “The requirement that expenditures be incurred ‘due to’ the public health emergency means that expenditures must be used for actions taken to respond to the public health emergency. These may include expenditures incurred to allow the State, territorial, local, or Tribal government to respond directly to the emergency, such as by addressing medical or public health needs, as well as expenditures incurred to respond to second-order effects of the emergency, such as by providing economic support to those suffering from employment or business interruptions due to COVID-19-related business closures.”

It continues: “Funds may not be used to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify under the statute. Although a broad range of uses is allowed, revenue replacement is not a permissible use of Fund payments.”

Again, this section of the guidance leaves me with a big question: Exactly what is considered a second-order effect of the emergency? If my fire department wasn’t able to hold our spring festival due to COVID-19 restrictions and we lost $27,000 in revenue, I would think that would be a second-order effect of the emergency. However, when I continued to read the next paragraph, it clearly states that revenue replacement is not a permissible use of funds. If you are completely confused, don’t feel bad because I am also.

Talk to your attorney or CPA

Because of the lack of clarity of the CARES guidance document, I recommend that you have your attorney and/or your certified public accountant (CPA) review this document and provide you with guidance before you expend any federal CARES funding. 

Remember, two years from now, when there isn’t an immediate emergency going on, some auditor will show up and want explanations for your expenditures. If you can’t provide the auditor with sufficient information, you may have to pay back the CARES funding you received.

You may think that sending that check back will really hurt your checkbook, but the real fallout will happen when the story hits the media that “ABC Volunteer Fire company misspent federal grant money.” Those types of negative headlines are hard to overcome.

Please seek professional guidance before it is too late.