Counties Say Virus Relief Fund is Shorting Them by Billions

The Treasury Department’s plan for divvying up billions of dollars in federal coronavirus relief between large counties and the cities within their borders isn’t fair and should be changed, a group that advocates on behalf of counties is arguing.

Treasury issued guidelines this week for how it will dole out $139 billion from the “Coronavirus Relief Fund,” a pot of money that is meant to assist state and local governments with covering costs tied to the pandemic. The relief fund was created under the broader, $2 trillion coronavirus aid package known as the “CARES Act,” which Congress approved last month.

The National Association of Counties says Treasury’s formula for dispensing the relief fund dollars favors cities at the expense of counties and channels money to state governments that should instead be controlled at the local level.

"We are not looking nationally to have a fight between cities and counties,” Matt Chase, NACo’s executive director and CEO said during a call with reporters on Wednesday. “Counties play a frontline role. We also think cities should get aid.”

“What is happening, is we are being pitted against each other through these formulas,” he added. NACo contends that the Treasury formula is currently skewed in a way that is detrimental to counties and Chase said the group is “trying to make sure it's balanced.”

States, as well as local governments with populations over 500,000, are eligible for direct aid from the relief fund. The rub comes when a county with more than 500,000 people encompasses a city, or some other jurisdiction, that also has a population above that level.

In that situation, the city can apply directly for its own aid funding from the relief fund. If the city does so successfully, the county is still eligible for some aid, but the sum it can get will be reduced based on a calculation that subtracts the city’s population.

If a county has 900,000 residents and 750,000 of them live in a city within its borders and the city taps the aid fund, the city will get aid based on its full population and the county payment will be based on the difference in their populations—in this case 150,000.

(In a situation where a county and a city within its borders together have over 500,000 residents, but the city itself has a population under 500,000, the city is not eligible for direct funding and the county would qualify for a payment based on their total combined population.)

A NACo spokesperson explained by email after Wednesday’s call that the group’s position is that both counties and cities should be awarded funds based on their full populations—900,000 and 750,000 using the example above.

Chase noted that this wouldn’t raise the federal cost of the relief fund distributions compared to what they are now. That’s because each state is allotted a portion of the fund based on its population and the direct local payments are carved from those total state sums.

That means that if counties get less money under the Treasury formula, the difference will be available to state governments, rather than flowing directly to localities. Chase said the formula will direct roughly 52% of the relief fund to cities and just 16% to urban counties. 

For Los Angeles County, he said, this will result in a loss of $696 million from a $1.7 billion payout the county could have received if its full population counted. Harris County, Texas, where Houston is located, he said, will lose out on $405 million, even though the county is footing the bill for costs like surge medical care capacity.

“That same pattern happens across all these major metropolitan areas,” Chase said.

All told, Chase said the Treasury formula is costing counties nationwide about $5.2 billion.

State and local governments across the country are concerned about the public health costs that are stacking up from the pandemic, as well as the revenues they are losing. Measures to control the virus have frozen huge swaths of the economy, undercutting tax revenues.

The issue with overlapping counties and cities isn’t the only one that local officials are concerned about with federal aid dollars. 

Many would also like to see restrictions loosened on how the funds can be used. A sticking point with the relief fund is that the money from it can only be spent on certain expenses tied to the virus response. It cannot be used to backfill lost tax revenues due to the economic crash.

Some officials from smaller cities and counties have also complained about the 500,000-person cutoff for direct funding.

While it’s possible that states could pass relief fund money to local governments, elected leaders in smaller jurisdictions are not optimistic that this is going to happen. They’re calling on Congress to provide additional state and local aid in future legislation, and to provide a direct pipeline for it to flow to places with populations under 500,000.

Lawmakers in Congress have floated proposals to make changes along these lines, and to relax the ban on using relief fund dollars to cover lost state and local government revenues.

Chase said that if Treasury isn’t willing to work with NACo on changing the guidelines for distributing the relief fund money in the CARES Act, the group would seek a “legislative fix.”

“We are looking for relief,” he said. “We would like to see that money put back into the local communities.”