Tax with Tara: Treasury distributes billions in relief funds

I’m Tara Fisher, Becker’s resident tax expert. The Treasury Department recently announced that it distributed $105.3 billion of the $350 billion coronavirus relief funds designated for cities, states, Tribes and territories over a two-week period earlier this May. In this article, I’ll explain what these funds entail, and how the funds are being distributed. Let’s get started!

Coronavirus state and local fiscal recovery funds: What are they?

The American Rescue Plan Act of 2021, aka ARPA, established fiscal recovery funds for cities, states, Tribes and territories across the United States in response to the economic challenges that arose from the COVID pandemic. The $350 billion in emergency funds provided by the passing of ARPA is intended to assist state and local governments and support communities hardest-hit by the COVID-19 pandemic. The funds can be used to support households, small businesses, local industries and essential workers. By close of business on May 19, the Treasury Department had distributed approximately one-third of the $350 billion of funds to over 1,500 recipients.

According to a press release issued by the Treasury Department, “This state and local aid program is going to provide transformative funding to communities across the country, and our Treasury team is focused on getting relief to these communities as quickly as possible.” Secretary of the Treasury Janet L. Yellen also noted that, “In the past 11 days, almost a third of the funding has gone out the door, and I’m hopeful communities will be able to rehire teachers and help businesses re-open much sooner than otherwise. Of course, the work still continues.”

The chart below summarizes how the $350 billion of funds has been allocated by Congress.

The Treasury Department guidance gives recipients flexibility in deciding how to use the funds in meeting the needs of their communities. According to the Treasury Department’s press release, in addition to allowing for flexible spending up to the level of their revenue loss, the funds may be used to:

•Support public health expenditures, by – among other uses – funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, mental health and substance misuse treatment and certain public health and safety personnel responding to the crisis

• Address negative economic impacts caused by the public health emergency, including rehiring public sector workers, providing aid to households facing food, housing or other financial insecurity, offering small business assistance and extending support for industries hardest hit by the crisis

• Aid the communities and populations hardest hit by the crisis, and support an equitable recovery by addressing not only the immediate harms of the pandemic, but its exacerbation of longstanding public health, economic and educational disparities

• Provide premium pay for essential workers, offering additional support to those who have borne and will bear the greatest health risks because of their service during the pandemic

• Invest in water, sewer and broadband infrastructure, improving access to clean drinking water, supporting vital wastewater and stormwater infrastructure, and expanding access to broadband internet ¹

The Treasury Department distributes the relief funds directly to each state, county, metropolitan city, Tribal government or territory.

Emergency Rental Assistance Program

Two separate Emergency Rental Assistance (ERA) programs have also been established to assist households that are unable to pay rent or utilities due to the hardships created by COVID-19. ERA1 provides up to $25 billion under the Consolidated Appropriations Act of 2021, which was enacted on December 27, 2020, and ERA2 provides up to $21.55 billion under ARPA, which was enacted on March 11, 2021.

With respect to ERA2, established by ARPA, the Treasury Department distributed $6.1 billion of the $21.55 billion as of May 21, 2021. According to the Treasury Department, nearly 7 million Americans reported being behind on rent in the second half of April 2021, and more than 40 percent of those renters expressed concern that they could be evicted sometime in the next two months.

The Treasury Department has stated that while there are some differences in eligibility between ERA1 and ERA2, the eligibility requirements are very similar. The Treasury is seeking to implement ERA2 consistently with ERA1 to reduce administrative burdens for grantees.

Knowing the extent of these relief funds, how the funds will be distributed, and the implication on local governments and businesses is essential for any CPA or accountant to understand.

Keep visiting the Becker blog for the latest tax updates that you need to know.

Tara Fisher has been practicing tax for over 20 years. Her professional background includes working for the U.S. Congress Joint Committee on Taxation, the national tax practice of PricewaterhouseCoopers, the University of Pittsburgh, and American University in Washington D.C. She is a licensed CPA and holds both an undergraduate and graduate degree in accounting from the University of Virginia.

The content contained in this article is for informational purposes only and is not tax advice. You should consult a tax advisor for advice applicable to your situation.

Sources:

1.  “In First 11 Days, Treasury Distributes $105.3 Billion through Coronavirus State and Local Fiscal Recovery Funds.” U.S. DEPARTMENT OF THE TREASURY, 20 May 2021, home.treasury.gov/news/press-releases/jy0187.