When the latest federal aid bill was passed by the U.S. Senate on Tuesday, it did not include additional funding for state and local governments. Sen. Schumer said, “We got a commitment from President Trump and [Treasury] Secretary Mnuchin that they will be able to use their state and local money to deal with revenue losses.”

There was apparently a disconnect. Yesterday Treasury released guidance for state and local governments on acceptable uses of the $150 billion that was appropriated for them in the CARES Act. The act specifies that the funds may only be used for “necessary expenditures incurred due to the public health emergency” from March 1, 2020 to Dec. 30, 2020.

The new guidance provides some flexibility—not only may the funds be used for direct public health needs, they may also be used to cover costs “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.”

However, the guidance specifies, “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.”

Treasury provides some examples of eligible expenditures, including:

• “Payroll expenses for public safety, public health, health care, human services, and similar employees whose services are substantially dedicated to mitigating or responding to the COVID-19 public health emergency.”
• “Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures.”
• “Expenses to facilitate distance learning, including technological improvements, in connection with school closings to enable compliance with COVID-19 precautions.”

(Another example of an eligible expense is “costs of providing COVID-19 testing, including serological testing.” Tuesday, Sen. Braun recommended that Washington perform a random serology test of 25,000 Washingtonians. It appears that such a test could be funded with Washington’s CARES Act funds.)

Treasury also provides some examples of ineligible expenditures, including:

• “Expenses for the State share of Medicaid.”
• “Payroll or benefits expenses for employees whose work duties are not substantially dedicated to mitigating or responding to the COVID-19 public health emergency.”

According to a Treasury frequently asked questions document, states may transfer some of their dedicated funds to local governments, as long as it is for eligible expenditures. This is important as most local governments in Washington are not eligible for direct CARES Act funding (which is limited to those with populations of at least 500,000).