All information in this COVID-19 Response Resource issue is effective as of May 26, 2020.
The CARES Act created a $150 billion Coronavirus Relief Fund to help states and local governments respond to the global COVID-19 pandemic. Mountain West states including Utah, Idaho, Nevada and Montana have each been allocated $1.25 billion under the Fund. Local governments will also see large distributions. Salt Lake County, for example, has been allocated approximately $202 million from the Fund and recently announced that it will be distributing $34 million directly to municipalities in the coming weeks.[1] Utah County has been allocated another $111 million.
These funds can be used for “necessary expenditures” incurred because of the COVID-19 pandemic and unaccounted for in the state or government budget most recently approved as of March 27, 2020.[2] The Treasury, which has oversight of these funds, has provided some guidance about what types of expenditures do and do not qualify.[3] Coronavirus Relief Fund dollars can be used for everything from direct-response costs, including medical equipment and testing, to second-order costs, such as support for local businesses. This flexibility will be helpful to local governments responding to a once-in-a-century crisis.
But like so many things, the devil is in the details. What if a municipality already allocated funds for disease prevention but did not do so in anticipation of a pandemic and its attendant costs? Can a local government redeploy previously funded personnel to new responsibilities relating to COVID-19? And at what point does an expenditure become “necessary” due to the COVID-19 pandemic? Local governments will need to think carefully about how they answer these types of questions. Failure to do so could result in liability under the False Claims Act (FCA), which broadly prohibits false or fraudulent claims for payment or approval of federal dollars.[4] Unlike states, municipalities are not immune from FCA liability.[5] And while states enjoy immunity, state officials do not. The U.S. Attorney’s Office for the District of Utah—which prosecutes local FCA claims—recently took over an FCA case alleging that Utah officials misused federal criminal justice grants. What’s more, the Department of Justice has put the country on notice that fraud is a top enforcement priority for U.S. Attorney’s Offices as federal dollars flow to help with relief efforts.[6] These are not idle words. The Department of Justice has pursued FCA claims against local governments in the wake of disasters, including against New York City for the misuse of FEMA funds obtained after Superstorm Sandy.[7]
The risk of FCA liability should not slow down local governments from using these funds, but municipalities should consider taking steps to ensure compliance with the CARES Act and FCA. These steps could include detailed documentation, and disclosure, of the bases for spending decisions.
To discuss this or related issues, contact Eric Johnson at (801) 536-6732 or send an email to ejohnson@parsonsbehle.com; or call Brandon Mark at (801) 536-6958 or send an email to bmark@parsonsbehle.com. You can also read more from Parsons Behle & Latimer about False Claims Act risks and risk-mitigation strategies relating to the CARES Act here.
[1] See https://twitter.com/SLCoMayor/status/1263152774239227905.
[2] CARES Act § 5001(d).
[3] Department of the Treasury, Coronavirus Relief Fund Guidance for State, Territorial, Local, and Tribal Governments, available at https://home.treasury.gov/system/files/136/Coronavirus-Relief-Fund-Guidance-for-State-Territorial-Local-and-Tribal-Governments.pdf (last visited May 24, 2020).
[4] 31 U.S.C. § 3729 et seq.
[5] Cook County v. United States ex rel. Chandler, 538 U.S. 119 (2003). Courts have held that Tribes, like states, enjoy sovereign immunity from claims under the FCA. See, e.g., Dahlstrom v. Sauk-Suiattle Indian Tribe, Case No. C16-0052JLR (W.D. Wash, Mar. 21, 2017).
[6] Department of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud, available at https://www.justice.gov/opa/pr/attorney-general-william-p-barr-urges-american-public-report-covid-19-fraud (last visited May 24, 2020).
[7] Department of Justice, Manhattan U.S. Attorney Announces $5.3 Million Proposed Settlement Of Lawsuit Against New York City For Fraudulently Obtaining FEMA Funds Following Superstorm Sandy, available at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-53-million-proposed-settlement-lawsuit-against-new-york (last visited May 24, 2020).
