• Thirty-two states are withholding federal funds from local governments according to data compiled by the National League of Cities, confirming reports that local governments are not receiving funding.
• Treasury Department guidance makes clear that states can and should pass money on to local governments.
• Despite this, states “are withholding funding from most” local governments, including rural towns, “with no indication when, or if, funds will ever be made available.”

States Withholding Funds from City and Local Governments:

• Two states, North Carolina and Missouri, are providing funding to county governments but excluding city and local governments. The sixteen remaining states, including Texas, are allowing small town governments to apply for a transfer of funds, with various degrees of red tape.

Additional Concern: State Efforts to Circumvent Congressional Intent

Some states also appear to be getting creative in preserving state funds as federal funds flow to various governmental and private entities. For example, states are:

• Squeezing Medicaid Providers: Recent press reports indicate that several states (Ohio, Alaska, and Colorado) had already announced cuts to state Medicaid funding over the next several months. States pointed to the federal 6.2% boost in funding as a way to make up for the state cut.
• Squeezing Foster Care Providers: In Illinois, the state Department of Human Services issued FAQs taking the position that it cannot reimburse its nonprofit contracted partners for payroll expenses covered by Paycheck Protection Program (PPP) loans. The state is encouraging nonprofits to apply for the money because “[e]very successful application increases state funding.” One nonprofit that provides foster care services in Illinois told Committee staff that their understanding is that when a PPP loan is forgiven, the state will reduce the amount it pays the nonprofit dollar for dollar. The result will leave the nonprofit in the same position as before it received the PPP loan and would instead directly benefit to the state’s budget.
• Squeezing Local Governments: Local governments are concerned that state governments will take the same approach as Illinois in how it deals with CRF money. The concern is that the state may distribute funds for coronavirus expenses one day but turn around and rescind state funding in another area for the same amount the next day. If this happens, the net result would be that the state government would receive all of the benefit of the relief fund.

Want to read more on the fight against Coronavirus? Read our Coronavirus Bulletin here which contains our extensive FAQ about recent federal actions.

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