On March 6, the United States Senate adopted an amended version of House Resolution (“HR”) 1319, the American Rescue Plan Act of 2021, a $1.9 trillion legislative package intended to address the economic damage caused by COVID-19.
For local governments, the passage of the American Rescue Plan Act promises much-needed funding and imposes few, if any, unfunded obligations on public employers. While there are numerous provisions in the American Rescue Plan Act that may affect public employers and their employees, this special bulletin focuses on provisions in the Senate version of American Rescue Plan Act that will provide financial assistance to public employers, incentivize public employers to provide COVID-19-related assistance to their employees and extends federal assistance to public employees and former employees.
Creation of a Coronavirus Local Fiscal Recovery (“CLFR”) Fund
Most importantly, the American Rescue Plan Act establishes a $130 billion Coronavirus Local Fiscal Recovery (“CLFR”) Fund[1] to provide funds for cities, counties and special districts[2] in order to mitigate the fiscal effects stemming from the public health emergency caused by COVID-19.[3]
The Act provides four (4) general purposes for which local governments may use CLFR Funds:
(1) To respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
(2) To respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers, or by providing grants to eligible employers that have eligible workers who perform essential work;
(3) For the provision of government services to the extent of the reduction in revenue due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency; or
(4) To make necessary investments in water, sewer, or broadband infrastructure.
The breadth of the purposes for which local governments may use such funds means that local governments may qualify to be reimbursed for many, if not most, of the costs incurred in order to respond to the public health emergency caused by COVID-19, subject to the availability of reserved funds and certain statutorily-imposed funding limits.[5]
For example, a local government likely would qualify for CLFR payment under the purposes described above for the following employment costs incurred in response to COVID-19:
(1) Costs associated with providing paid leave to employees for reasons related to COVID-19 for which the local government does not receive a payroll tax credit, discussed below[6];
(2) Compensation, including regular and overtime costs, for essential and non-essential employees, including, but not limited to, health care workers and safety employees, who performed services related to the public health emergency; and
(3) Costs related to health and safety measures adopted and implemented in order to make workplaces safer and to prevent or limit the spread of the virus that causes COVID-19 in the workplace.[7]
In order for a local government to apply for CLFR payments, the local government must apply to either the federal government or the state, depending on whether it is a larger city[8] or a county (in which case the Treasury Department will provide such payments directly[9]) or a smaller city (in which case the state will provide the reserved CLFR funds received from the Treasury Department [10]). “Consolidated governments,” which includes “a unit of local government that has formed a consolidated government [e.g., a joint powers authority], or that is geographically contained (in full or in part) within the boundaries of another unit of general local government [e.g., a special district]” may apply to either the federal government or the state or both.[11]
In order to apply for CLFR payments from the federal government, an authorized officer of the city, county, or special district[12] must apply to the Treasury Department and provide the Secretary of the Treasury with a signed “certification of need and intended uses.”[13] The signed certification must state that the city, county, or special district requires federal assistance for one or more of the reasons provided above and that the city or county intends to use any funds received from the federal government for that stated purpose.[14]
For smaller cities and special districts, the Treasury Department will allocate the reserved funds to state, and the state will then distribute a proportionate share of such funds for smaller cities and special districts in the state.[15]
As a result of the significant amount of CLFR funds available for COVID-19 related reasons, local governments, regardless of the type, should begin preparing to apply for such funds. Liebert Cassidy Whitmore recommends that local governments immediately undertake the following steps: (1) assemble finance, and other relevant, staff members in order to determine the scope of potentially qualified expenses that the employer incurred or losses that they sustained; (2) Assess all costs associated with or potentially associated with the government’s response to the public health emergency caused by COVID-19; (3) Assess all losses sustained that are associated with or potentially attributable to the public health emergency caused by COVID-19; and (4) Prepare records of such costs and losses to substantiate any claims for CLFR payments.
Expansion of Payroll Tax Credits for Local Governments that Voluntarily Extend Paid Sick Leave Benefits Previously Required Under the Families First Coronavirus Response Act (“FFCRA”) Leave
While the American Rescue Plan Act does not re-enact the Families First Coronavirus Response Act (“FFCRA”),[16] which expired on December 31, 2020,[17] or reinstate the paid leave obligations, including Emergency Paid Sick Leave (“EPSL”)[18] and Expanded Family and Medical Leave (“EFML”),[19] the Act does extend payroll tax credits to public employers that were previously excluded from receipt of such credits under the FFCRA[20] and dramatically expand the scope of such credits.
The American Rescue Plan Act expands a system of payroll tax credits, initially established under the FFCRA and extended by the Consolidated Appropriations Act (“CAA”).[21] Under the prior version of this credit system, eligible employers (which expressly excluded the federal and state governments and their subdivisions, including local governments[22]) that voluntarily provided their employees EPSL and EFML between January 1 and March 31, 2021[23] would receive payroll tax credits to offset the costs associated with the provision of such benefits.
The American Rescue Plan makes the following changes to the eligibility and effective period for such credits: (1) expands eligibility for such credits to states and their subdivisions, including cities, counties, and special districts[24] and (2) extends the period of time during which eligible employers may receive such credits from March 31 to September 30, 2021.[25]
In addition to those changes, the American Rescue Plan significantly expands the scope of credits to which employers that elect to provide paid leave benefits to their employees will be entitled. Most significantly, the American Rescue Plan Act provides tax credits to employers that do the following: (1) expand the qualifying reasons for which an employee may receive EPSL in order to account for new reasons enumerated in the Act; (2) expand the qualifying reasons for which an employee may receive EFML to cover all of the reasons that an employee may receive EPCL, including the newly added qualifying reasons; (3) eliminate the requirement that the first 10 days of EFML be unpaid; and (4) extend the EFML period from 10 to 12 weeks.
Local governments, which now qualify for such payroll tax credits, should familiarize themselves with the operation of this credit system.
Credits for the Provision of Paid Leave Consistent with the FFCRA
Under the expanded credit system, employers that voluntarily provide employees EPSL[26] and EFML[27] for the qualifying reasons provided under the FFCRA may receive credit for paid sick leave and paid family leave equal to leave wages paid.[28]
Expansion of Qualifying Reasons for EPSL to Cover Workplace Exposures and Vaccinations
The credit system expands the qualifying reasons for EPSL for which an employer may claim a credit should it provide such paid leave to its employees.[29] The American Rescue Plan provides tax credits to employers that provide employees who satisfy one or more of the following criteria qualifying paid sick leave: “[1] [a] the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID–19 and [b] such employee has been exposed to COVID–19 or the employee’s employer has requested such test or diagnosis, or [2] the employee is obtaining immunization related to COVID–19 or [3] recovering from any injury, disability, illness, or condition related to such immunization’ after ‘medical diagnosis.’”[30]
This change has the effect of potentially covering some or all of the paid leave provided to employees excluded from work as the result of a “close contact” exposure at work or a workplace outbreak under the Cal/OSHA COVID-19 Regulations[31] as well as leave provided to employees to be vaccinated and to recover from an illness resulting from a vaccination.
Expansion of EFML to Cover All Purposes for Which EPSL is Available
In perhaps the most dramatic expansion of the FFCRA tax credits, the American Rescue Plan Act provides tax credits to employers that expand EFML, extending the tax credit coverage to include EFML provided to employees for any of the qualifying reasons for which an employee would be eligible for EPSL, including those initially provided for under the FFCRA as well as those new qualifying reasons discussed above.[32]
This expansion of EFML cannot be overstated because it effectively transforms time-limited EPSL into long-term EFML. While the paid leave amounts provided per day under the expanded EFML may be lower than under the EPSL, the extended coverage will be important to certain employees, such as “long haul” COVID-19 cases, who continue to experience symptoms of COVID-19 for long periods of time after their initial diagnosis.
Modifications to Qualification for EFML and the Length of EFML
Finally, the credit system also eliminates the requirement that the first 10 days of EFML leave be unpaid as provided for in the FFCRA[33] and increases eligible wages for which an employer may claim the EFML payroll tax credit to up to $12,000 per employee, rather than $10,000.[34] Collectively, these changes effectively expand the number of weeks for which a qualified employee may take paid family leave from 12 to 14 weeks.[35] Coupled with the expanded scope of EFML described above, this too is an important expansion of benefits for employees.
For employers that provide this expanded benefit, these changes will immediately provide employees who previously exhausted their EFM an additional two weeks of such leave and will provide other employees who have not exhausted their leave that amount of additional paid family leave should they need it.
While the American Rescue Plan Act does not re-enact the FFCRA, it does provide important tax credits by which local governments that voluntarily elect to continue providing FFCRA-like paid leave benefits may offer significantly expanded benefits while offsetting all such costs through equivalent credits. Liebert Cassidy Whitmore recommends that local governments that have provided such benefits previously and/or are considering doing so in the future, familiarize themselves with the operation of the tax credits in order to maximize applicable tax benefits.
Extension of CARES Act Unemployment Provisions
The American Rescue Plan Act extends two important unemployment assistance programs[36]: (1) the Federal Pandemic Unemployment Compensation (“FPUC”) program[37]; and (2) the Pandemic Emergency Unemployment Compensation (“PEUC”) program[38], that were initially established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act,[39] but are set to expire on March 14, 2021.[40]
Under the FPUC program, eligible individuals may qualify to receive federal unemployment compensation to supplement the unemployment compensation provided to the individual by the state. Under the PEUC program, individuals who exhausted state unemployment compensation benefits because of the length of their unemployment would receive extended federal unemployment compensation. Collectively, these programs provided much-needed relief to public employees furloughed or laid off by local governments last year.
Note: For additional information on the operation of the FPUC and PEUC programs and the interplay between the two, employers should review the two-part series that Liebert Cassidy Whitmore published in April 2020. Part I (FPUC) and Part II (PEUC).
Under the CAA, Congress reauthorized both programs before their initial expiration on December 31, 2020, however, the reauthorization provided only a temporary extension which was set to expire on March 14, 2021.[41][42] The extension passed through the CAA also reduced the benefit payable under the FPUC program from $600 per week to $300 per week. Rather than let these programs lapse, the American Rescue Plan Act extends both programs at their current benefit funding levels through September 6, 2021.
Local governments need not undertake any specific action with respect to the extensions of the FPUC and PEUC programs. However, to the extent that an employer furloughed or laid off any employees, the local government may elect to inform such employees or former employees of the extension of the benefits under these programs.
Conclusion
While the American Rescue Plan Act provides for many other forms relief to individuals and entities, local governments should be familiar with the forms of relief described herein, particularly the availability of funding from the CLFR Fund and tax credits under the modified FFCRA.
LCW attorneys are familiar with the operation of the American Rescue Plan Act and its various provisions, and are available to help local governments assess potentially qualified CLFR costs and address any other issues that they may have about this law and the benefits available thereunder. LCW will be monitoring this legislation closely and will be providing additional updates as circumstances require.
[1] See American Rescue Plan Act, Sec. 5001, amending Title VI of the Social Security Act (42 U.S.C. §§ 801, et seq.) to add Section 603, creating a Coronavirus Local Fiscal Recovery Fund (hereinafter “Coronavirus Local Fiscal Recovery Fund”.)
[2] The American Rescue Plan Act does not refer to “special districts,” but rather refers to “consolidated governments” “that is contained (in full or in part) within the boundaries of another unit of general local government.” (See Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(4).)
[3] Of the approximately $130 billion in funds for local governments, the Treasury Secretary will reserve the following amounts for different types of local governments: (1) approximately $45.6 billion for “metropolitan cities” (See Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(1)(A)); approximately $65.1 billion for counties (See Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(3)(A)); and approximately $19.5 billion for “non-entitlement units,” (See Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(2)(A)) which are cities that are not “metropolitan cities” (with populations less than 50,000) (See Coronavirus Local Fiscal Recovery Fund, Sec. 603(e)(3)). The American Rescue Plan Act does not reserve a specified amount for “consolidated governments” (See fn. 3, supra.), but such “consolidated governments” may apply for CLFR payments reserved for each of the other types of local governments described herein. (See Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(4).)
[4] Coronavirus Local Fiscal Recovery Fund, Sec. 603(c)(1).
[5] Public agencies should note that the American Rescue Plan Act appropriates a prescribed amount of funding to each type of local government, and imposes certain allocation and payment limitations on the local governments that may draw down such funds from the CLFR Fund. (See of the Coronavirus Local Fiscal Recovery Fund, Secs. 603(b)(1)(B) [providing the allocation and payment formula for “metropolitan cities”]; 603(b)(2)(B)-(C) [providing the allocation and payment formula for the states for “non-entitlement units” and the distribution of such funds to “non-entitlement units”]; 603(b)(3)(B) [providing special allocation rules for counties]; and 603(b)(4) [providing that “consolidated governments” may qualify to receive a distribution under each of the ].)
[6] Paid leaves related to COVID-19 that may be reimbursed include the following types of leave: (1) Emergency Paid Sick Leave (“EPSL”) and Expanded Family and Medical Leave (“EFML”) under the Families First Coronavirus Response Act (“FFCRA”) (See PL 116-127); (2) COVID-19 Supplemental Paid Sick Leave under Labor Code section 248.1; (3) Certain paid leave under the Cal/OSHA Emergency Temporary Standards (“COVID-19 Regulations”) (See 8 C.C.R. § 3205(c)(10)(C)) [local governments should only apply for CLFR payments for employer-paid leave, not leave requiring the employee to use earned or accrued paid leaves]; and (4) paid leave provided as a matter of policy, rather than required under federal or state law; American Rescue Plan, Secs. 3131(f)(3) and 3132(f)(3) provide for the denial of double benefit. While the letter of these provisions do not appear intended to deny public employers to payments related to the costs incurred in providing EPSL and EFML, those sections generally provide for payroll tax credits to employers, including local governments, such that if a local government received or intends to receive a tax credit for the provision of EPSL or EFML, the government likely would not qualify for payment from the CLFR Fund for the same expenses (which the government will receive payroll tax credit).
[7] Cal/OSHA COVID-19 Regulations require that employers adopt a COVID-19 Prevention Plan (“CPP”) (See 8 C.C.R. § 3205(c)), which provides for a number of measures that employers must undertake in order to prevent the transmission of the virus that causes COVID-19. These measures include, but are not limited to, the following: (1) Establishing a system for communicating with employees; (2) Identifying and evaluating COVID-19 hazards; (3) Investigating and responding to COVID-19 cases in the workplace; (4) Correcting COVID-19 hazards (5) Training and instructing employees; (6) Establishing physical distancing protocols; (7) Requiring and providing face coverings; and (8) Providing engineering and administrative controls and Personal Protective Equipment (“PPE”). Costs incurred by local governments related to each of these subjects, as well as the preparation of the CPP itself, may be covered by the CLFR Fund.
[8] The Coronavirus Local Fiscal Recovery Fund provides different distribution rules for “metropolitan cities” (Coronavirus Local Fiscal Recovery Fund, Sec. 603(e)(2); See 42 U.S.C. § 5302(a)(4)) and “non-entitlement units” (see fn. 4, supra.) (Compare Coronavirus Local Fiscal Recovery Fund, Secs. 603(d) and (b)(2)(C), respectively.).
[9] Coronavirus Local Fiscal Recovery Fund, Sec. 603(d).
[10] Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(2)(C).
[11] Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(4). While “consolidated governments” are not expressly provided for in Coronavirus Local Fiscal Recovery Fund, Sec. 603(d), the distribution described in Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(4) implies that such local government may apply to the Treasury Department for CLFR payments. Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(4) implies that “consolidated governments” may apply for CLFR payments from the state, as provided in Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(2).
[12] See fn. 10, supra.
[13] Coronavirus Local Fiscal Recovery Fund, Sec. 603(d).
[14] Coronavirus Local Fiscal Recovery Fund, Sec. 603(d)(1).
[15] Coronavirus Local Fiscal Recovery Fund, Sec. 603(b)(2)(C).
[16] PL 116-127.
[17] See FFCRA, Secs. 3102, 5109; 29 U.S.C. § 2601.
[18] FFCRA, Sec. 5101, et seq.
[19] FFCRA, Sec. 3101, et seq.
[20] See American Rescue Plan, Secs. 3131(f)(5) and 3132(f) [excluding tax credits to the federal government and its subdivisions, but not excluding state governments or their subdivisions from seeking such credit]; Compare to FFCRA, Secs. 7001(e)(4) and 7003(e)(4) [excluding tax credits to the federal and state governments and their subdivisions].
[21] PL 116-260; CAA Section 286(a).
[22] See FFCRA, Secs. 7001(e)(4) and 7003(e)(4) [excluding tax credits to the federal and state governments and their subdivisions]. The federal government and its subdivisions (American Rescue Plan, Sec. 3131(f)(5).); See also Internal Revenue Service (“IRS”), “COVID-19 Related Tax Credits: What is an Eligible Employer FAQs,” Question 19b https://www.irs.gov/newsroom/covid-19-related-tax-credits-what-is-an-eligible-employer-faqs (Last updated on January 28, 2021) [“The Federal government, the governments of any State or political subdivision thereof, and any agencies or instrumentalities of those governments are not Eligible Employers and are not entitled to receive tax credits for providing paid leave wages under the [Emergency Paid Sick Leave Act] or Expanded [Family Medical Leave Act].”].)
[23] The CAA only extended the payroll tax credits through March 31, 2021. (See CAA Section 286(a) [extending FFCRA Secs. 7001 and 7003 (which exclude state governments and their subdivisions from payroll tax credits].)
[24] See fn. 20.
[25] American Rescue Plan, Sec. 3131(g) (making the tax credits available for wages paid between April 1 and September 30, 2021).
[26] American Rescue Plan, Sec. 3131; See also FFCRA, Sec. 7001.
[27] American Rescue Plan, Sec. 3132; See also FFCRA, Sec. 7003.
[28] American Rescue Plan, Secs. 3131(a) and 3132(a).
[29] American Rescue Plan, Sec. 3131(c)(2)(A)(i).
[30] American Rescue Plan, Sec. 3131(c)(2)(A)(i), emphasis and brackets added.
[31] See 8 C.C.R. § 3205(c)(10)-(11); See also 8 C.C.R. § 3205.1.
[32] American Rescue Plan, Sec. 3132(c)(2)(A)(i).
[33] See American Rescue Plan, Secs. 3132(c)(2)(A)(ii)(I) and (II) [eliminating requirement that an employer shall provide employees EFML after such employees take EPSL leave or “unpaid leave for the initial 10 days”]; See also FFCRA, Sec. 110(b)(2)(A).
[34] See American Rescue Plan, Secs. 3132(b)(1)(B) and (c)(2)(A)(ii)(III) [expanding the maximum permissible EFML pay from $10,000 to $12,000].
[35] When combined with the EPSL, the total amount of leave for EFML purposes is 14 weeks, two of which would be paid under EPSL and the remainder paid under EFML.
[36] American Rescue Plan Act, Secs. 9013 [extending the Federal Pandemic Unemployment Compensation (“FPUC”)] and 9016 [extending the Pandemic Emergency Unemployment Compensation (“PEUC”)]
[37] CARES Act, Sec. 2104(e)(2).
[38] Social Security Act, Sec. 903(i)(1)(D).
[39] PL 116-136.
[40] The CAA reauthorized the Federal Pandemic Unemployment Compensation (“FPUC”) and Pandemic Emergency Unemployment Compensation (“PEUC”) programs, described in this section, extending such programs, which were set to expire on December 31, 2020, through March 14, 2021. (See CAA, Div. N., Tit. II, Subt. A., Secs. 203 and 206.
[41] See fn. 33, supra.
[42] See CAA, Div. N., Tit. II, Subt. A., Sec. 203, amending CARES Act Section 2104(e) to reduce the amount of the FPUC benefit from $600 to $300 per week.