The landmark $2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES), enacted last week, includes critically important new funding to help states in their fight to combat COVID-19. Governors and legislatures, most adjourned to comply with social distancing bans on public gatherings, will need to make quick but informed decisions about how best to target these resources.
Policymakers will need to weigh the extraordinary needs states are confronting against the federal criteria stipulating when and how states can spend these dollars and consider all the funding that will soon be available directly or indirectly to states in order to make difficult decisions amid many competing interests. The massive new law includes direct payments to individuals, unemployment assistance, and an array of other supports, including significant new funding for health services.
Much attention is directed to Title V of the Coronavirus Relief Fund, which directs $150 billion to support states and must be made available to states within 30 days of enactment of the law. No state will receive less than $1.25 billion. The amount to states (estimated by Federal Funds Information for States) is calculated after offsets to fund $3 billion for Washington, DC and the territories and $8 billion for tribal governments. In addition, the law allows large localities to apply directly to the Treasury Secretary for grants and those dollars, which go directly to localities, reduce the total funding available to governors.
- A locality is any unit of government other than state government (county, municipality, city, town, village, etc.)
- To qualify, the locality has to have a population of at least 500,000 people
To calculate how much a locality can receive, the secretary will use a formula* that factors in a locality’s population as a percentage of its state’s population.
It is not yet clear whether localities will apply directly to the secretary/federal government or instead work collaboratively with governors. A locality or state government must submit an application to the Treasury Department attesting that funds would be expended in compliance with established criteria. These state relief funds may only be used to help offset expenses incurred on or after March 1, 2020 and before Dec. 30, 2020.
- In addition to being time-limited, allowable expenses are:
- Those incurred as a result of the COVID-19 Public Health Emergency, and
- Those that are NOT already accounted for in a state or locality’s most recently approved budget, as of the date of the CARES Act’s enactment (March 27, 2020).
This latter criteria could prove problematic for many states. Confronted with the pandemic, states moved quickly. Many states had either enacted their budgets, supplemental or budget amendments, prior to March 27, 2020, and their legislatures have now suspended or adjourned. Of those states, many included appropriations for COVID-19-related expenses. The National Conference of State Legislatures has published a list of what states had done, as of March 25, 2020. The state can spend to address other virus-related expenses, but these state relief funds are intended to supplement – not supplant – state funds.
States have extensive need and inadequate budgets for support to fight the epidemic, including testing and related supplies, protective gear for frontline workers, expanding hospital, provider, and treatment capacity, and supporting public schools and institutions of higher education whose funding was affected when schools closed and converted to on-line options. Additionally, there remains deep concern about the impact of the pandemic on jobs and the economy.
The act appropriates $16 billion for the National Strategic Stockpile (NSS). These funds can be used for a range of purposes including, but not limited to, the manufacture and purchase of vaccines and therapeutics, as well as supplies. To the extent the holdings of the NSS are distributed down to states for allocation to frontline providers, this investment can supplement state resources going for the same supplies. Similarly, investments in the development and production of a vaccine can ultimately help relieve pressure at the state level.
Hospitals and other providers: Medicare reimbursement will rise 20 percent for COVID 19-related expenses; planned reductions of Disproportionate Share Hospital payments will be delayed until December 2020. To address cash flow concerns, hospitals will be eligible for lump sum payments, accelerating for six months of anticipated spending with a year to repay. Of concern to governors, any hospitals in bankruptcy, which includes a number of small, rural hospitals, are not eligible for accelerated payments.
Additionally, $100 billion is available to providers, including hospitals, health centers, physician practices, and others, who are actively engaged in testing and treating patients with COVID-19. This is designed to offset expenses and losses related to the care of such patients when those expenses/losses are not otherwise covered by another source. Only providers who participate in Medicare and/or Medicaid are eligible for these funds. Eligible providers will need to submit applications to the Secretary of the Department of Health and Human Services for the funds and certify that the expenses are, in fact, associated with the public health emergency.
Health centers: About $1.3 billion is available to assist with COVID-19 testing and treatment.
Public health: A total of $4.3 billion is appropriated for US Centers for Disease Prevention and Control-wide activities. While a portion of this is earmarked for global surveillance efforts and the modernization of public health surveillance data, at least $1.5 billion of the appropriation is for grants and/or cooperative agreements to state, territorial, and local health departments, as well as tribal governments for public health surveillance, epidemiology, bolstering of lab capacity, infection control, mitigation, and other investments required to meet the challenge of COVID-19.
The CARES Act provides new flexibilities to address workforce shortages, supports additional telehealth and home health services, and increases funding for surveillance in the nation’s long-term care facilities to stem the increase in infections there. This infusion of funding and regulatory flexibility can relieve pressure on state budgets to provide needed support to these vital services.
Medicaid and education: The largest expenditures in state budgets are generally education and Medicaid. New federal funding provides relief for both. The earlier Families First Act provided a temporary increase in Medicaid federal matching funds of 6.2 percent to help defray COVID-19-related Medicaid expenditures for states that meet maintenance of eligibility (MOE) standards. However, states will incur additional Medicaid costs to make the eligibility and IT system changes needed to meet the MOE requirements.
About $30.75 billion is appropriated for the Education Stabilization Fund. These funds will remain available until Sept. 30, 2021. Funds include the Governors’ Emergency Education Relief Fund, which provides about $3 billion to help defray costs. They will fund:
- Emergency support grants to local educational agencies deemed by the states’ departments of education to have been most significantly impacted by the virus;
- Emergency support via grants to institutions of higher education determined by a governor to have been most significantly impacted by the virus; and
- Support to any other higher education or local institutions the governor deems essential for carrying out emergency educational services for students, including provision of child care, early childhood education, and the protection of education-related jobs.
Funds can be used for defraying expenses arising from the public health emergency, including lost revenue, reimbursement for expenses already incurred, technology costs associated with switching over to distance learning, and for student grants.
CARES is the third and largest investment of federal dollars to address the COVID-19 pandemic and provides funds directly and indirectly to states to assist their efforts. Despite the significance of the investment, whether these funds are adequate remains a question. States that led and quickly enacted budgets cannot use the money set aside in Title V to supplant state dollars but, given the escalation of infections, may still be able to qualify for additional dollars. All state leaders will assess needs against the breadth and scope of new federal funding to target resources quickly, building on their leadership in taking early action against the pandemic, yet with the knowledge that state revenues will likely decline as businesses remain shuttered, unemployment rises, and a recession looms.
*Only counties and municipalities whose populations exceed 500,000 are eligible for this funding. To calculate their allowance, take 45 percent of a state’s allocation and multiply it by the locality’s share of the state population.