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HomeMy WebLinkAboutItem 11City of Lakeville Finance Department Memorandum To: Mayor and City Council From: Jerilyn Erickson, Finance Director Copy: Justin Miller, City Administrator Date: September 8, 2020 Subject: CARES Act Funding Update The Coronavirus Aid, Relief, and Economic Security (CARES) Act established the $150 billion Coronavirus Relief Fund to provide funds to State, Local and Tribal governments navigating the impact of the COVID-19 outbreak. The City of Lakeville was allocated $4,846,940. Staff submitted the required certification form and funds were received on July 3, 2020. Eligible Expenses Current guidance states that expenses must satisfy three distinct elements: 1) Necessary expenditures incurred due to the public health emergency with respect to COVID-19. An expenditure is reasonably necessary for its intended use in the reasonable judgment of the government officials responsible for spending Coronavirus Relief Fund payments. Expenditures must be used for actions taken to respond to the public health emergency, including expenditures incurred to respond directly to the emergency, as well as expenditures incurred to respond to second order effects, such as by providing economic support to those suffering from employment or business interruptions due to COVID-19-related business closures. 2) Costs not accounted for in the city’s budget most recently approved as of March 27, 2020. 3) Performance or delivery must occur during the covered period, but payment of funds need not be made during that time (though it is generally expected that this will take place within 90 days of a cost being incurred). For cities, the covered period is March 1, 2020, to Nov. 15, 2020. Cities must spend funds by November 15, 2020. Ineligible Use of Funds Loss of revenues are NOT an eligible use of the funds. Current Status of Funds The guidance continues to change regarding the eligibility of expenses. Staff has reached out to other cities as well as the City auditors, CliftonLarsonAllen, to discuss interpretations of the guidance, etc. Attached to this report is a memo from CLA which articulates their understanding of the guidance. The following chart shows the current estimated amounts of expenses in three categories of confidence that the expenses would qualify: Category 1: High confidence of eligibility Description Spent through 8/31/2020 Obligated or paid after 8/31/2020 Total Public Health Expenses (Personal protective equipment (PPE), plexiglass barriers, etc.) $58,076 $10,639 $68,715 Small Business Grants* $233,489 $351,205 $584,694 Administration costs for SBG $0 $ 10,000 $10,000 Hardware/software to allow “work-from- home” capabilities $8,506 $22,000 $30,506 Unemployment expenses $248 $29,942 $30,190 Other – portable restrooms (city parks) $4,295 $10,500 $14,795 Staff paid during COVID-19 illness or quarantine $51,847 $0 $51,847 Public Safety: Staff shift adjustments to minimize exposure (police) & expansion of Fire duty crews (Fire-paid through July) $386,429 $47,922 $434,351 Payout of Police (union) vacation/PTO *estimate $0 $28,368 $28,368 COVID-19 Testing $0 $1,416 $1,416 Administrative expenses – to administer COVID policies and reporting $51,391 $20,000 $71,391 Budgeted personnel and services diverted to a substantially different use (non- public safety, non-COVID leave) $112,489 n/a $112,489 Totals $906,770 $531,992 $1,438,762 *Additional $300k being considered for approval on September 8, 2020. Category 2: Medium confidence of eligibility Description Spent Obligated but not paid Total Temporary pay for essential workers via Emergency order (Est Nov 15) – moved to Category 1 Category 3: Low confidence of eligibility Description Spent or Obligated Total ALL public safety expenses from March 01 – November 15, 2020 qualify – used 8/12 of personnel expenses * (administrative convenience) *Total personnel budget for PD $9,760,854 *Total personnel budget for Fire $1,684,742 $7,630,397 $7,630,397 Category Total Spent/Obligated Grant Remaining CARES Act Grant $4,846,940 Category 1: High confidence $1,438,762 $3,408,178 Category 2: Medium confidence $0 $3,408,178 Category 3: Low confidence $7,630,397 $0 The City approved an agreement on August 17, 2020 with Dakota County regarding use of the 2020 CARES Act Grant for 2020 federal election funding in the amount of $24,826.21. Staff is seeking general feedback from the Council on the CARES Act funding. Attachment: Memo from CliftonLarsonAllen To: City of Lakeville  From: CliftonLarsonAllen LLP – Christopher Knopik, CPA, CFE  Date: September 8, 2020  Re: CARES Act    On June 25, 2020, Governor Tim Walz used executive powers to distribute $841.5 million of CARES Act funds  received by the State of Minnesota to counties, cities, and townships over 200 in population.  The CARES Act  distributed funds which were approved by the U.S. Government of the Coronavirus Relief Fund (CRF). Of the  State of Minnesota’s distribution, the City of Lakeville received $4,846,940.  The CARES Act included three  requirements which, if they are met, would make expenditures eligible to be covered by the CARES Act  funding.  These include:  1. Are necessary expenditures incurred due to the public health emergency with respect to the  Coronavirus Disease 2019 (COVID‐19);  2. Were not accounted for in the budget most recently approved as of March 27, 2020 (the date of the  enactment of the CARES Act) for the State or government; and  3. Were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.  Note: for the State of Minnesota the Minnesota Management and Budget Office requires cities to  incur eligible costs by November 15, 2020.  These three requirements are pretty open ended as to what they could potentially cover.  Therefore the  U.S. Department of Treasury has issued a series of Frequently Asked Questions (FAQ) documents and CRF  Guidance documents, both of which have recently been updated as of September 2, 2020. In addition, the  Treasury Office of Inspector General (OIG) released their own Frequently Asked Questions (OIG FAQ)  document on August 28, 2020 related to reporting and recordkeeping.  One area that has garnered the most significant attention and has caused some of the most confusion is  surrounding FAQ #2 in which it indicates “as a matter of administrative convenience in light of the  emergency nature of this program, a State, territorial, local, or Tribal government may presume that payroll  costs for public health and public safety employees are payments for services substantially dedicated to  mitigating or responding to the COVID‐19 public health emergency, unless the chief executive (or  equivalent) of the relevant government determines that specific circumstances indicate otherwise.”  This  FAQ has caused a lot of discussion throughout the State of Minnesota among local governments and the  rest of the Country as the CRF was not intended to help local governments with general fiscal assistance.       CLA (CliftonLarsonAllen LLP) CLAconnect.com September 8, 2020  City of Lakeville  Page 2  In the recently issued Guidance the Treasury has attempted to provide additional clarification to this FAQ by  including the following information (bolding and underlining added for emphasis by CLA):  Public health and public safety   In recognition of the particular importance of public health and public safety workers to State, local,  and tribal government responses to the public health emergency, Treasury has provided, as an  administrative accommodation, that a State, local, or tribal government may presume that public  health and public safety employees meet the substantially dedicated test, unless the chief  executive (or equivalent) of the relevant government determines that specific circumstances  indicate otherwise. This means that, if this presumption applies, work performed by such  employees is considered to be a substantially different use than accounted for in the most  recently approved budget as of March 27, 2020. All costs of such employees may be covered using  payments from the Fund for services provided during the period that begins on March 1, 2020,  and ends on December 30, 2020.     In response to questions regarding which employees are within the scope of this accommodation,  Treasury is supplementing this guidance to clarify that public safety employees would include police  officers (including state police officers), sheriffs and deputy sheriffs, firefighters, emergency medical  responders, correctional and detention officers, and those who directly support such employees  such as dispatchers and supervisory personnel. Public health employees would include employees  involved in providing medical and other health services to patients and supervisory personnel,  including medical staff assigned to schools, prisons, and other such institutions, and other support  services essential for patient care (e.g., laboratory technicians) as well as employees of public health  departments directly engaged in matters related to public health and related supervisory personnel.  The bolded language was in previous versions of the Guidance and the underlined language is new in the  September 2nd version of the Guidance. The Guidance appears to be relaxing the requirements necessary to  claim the presumption related to public health and safety wages and benefits.  For non‐substantially dedicated employees local governments should track the time spent through a time  code, general ledger code, or in some other manner in which the local government would be able to provide  sufficient documentation as to the employee’s time.  This could also be completed through an analysis of an  employee’s time and be converted to a percentage of an employee’s time and applied for impacted payroll  periods.  Whether a local government uses the presumption of public health and safety employees or specific time  tracking for non‐substantially dedicated employees, the most important thing a local government can do  from the start is to document the thought process and rationale that was used to justify the wages or costs  were eligible to be reimbursed by the CARES Act. The Guidance under the section Supplement Guidance on  Use of Funds to Cover Payroll and Benefits of Public Employees includes the following language “With  respect to personnel expenses, though the Fund was not intended to be used to cover government payroll  expenses generally, the Fund was intended to provide assistance to address increased expenses, such as the  expense of hiring new personnel as needed to assist with the government’s response to the public health  emergency and to allow recipients facing budget pressures not to have to lay off or furlough employees who  September 8, 2020  City of Lakeville  Page 3  would be needed to assist with that purpose.”  Therefore the documentation generated and retained must  meet these specifications as well. This process for providing contemporaneous documentation will be vital if  the Treasury’s Inspector General selects the City to audit the use of CARES Act funds during the Pandemic.   OIG FAQ #70 which asks the question about whether a government is required to perform an analysis or  maintain documentation of the “substantially dedicated” conclusion for payroll expenses of public safety,  public health, health care, and human service employees. Yes, a government is required to maintain  documents and finance records to support all payroll expenses, including payroll of public safety, public  health, health care, and human service employees, substantially dedicated to mitigating the emergency.   Documents should include those to support conclusions made with respect to the “substantially dedicated”  use of CRF payments. If an analysis is performed, it should be supported by documentation as outlined with  the record retention requirements of memorandum OIG‐20‐021 and then referred to OIG FAQ #69.   OIG FAQ #69 is broken into three parts, at its highest level it asks the question of: to what level of  documentation will a government be held to support the reimbursement of public safety payroll that was  “presumed” to be substantially dedicated to mitigating the emergency? The answer references OIG‐20‐021  for the types of documentation that must be maintained which include, but are not limited to, payroll  records, time cards, general ledger reports, etc…  OIG FAQ #69a asks the question: will a government have  to demonstrate/substantiate that an employee’s function/duties were in fact substantially dedicated to  mitigating the emergency? The answer indicated is Yes, through documentation and financial records as  defined in OIG‐20‐021.  OIG FAQ #69b ask the question: for payroll that was accounted for in the FY2020  budget but was then “presumed” to be substantially dedicated to mitigating the emergency, will the  government have to demonstrate/substantiate that an employee’s function was substantially different use?  The answer provided was also Yes, the government is required to maintain documents and financial records  supporting payroll substantially dedicated to mitigating the emergency to support the use of CRF payments  regardless of where the payroll was originally budgeted.   Documentation related to payroll costs can include but are not limited to general and subsidiary ledgers  used to account for the CARES Act funds and payroll, time, and human resource records to support costs  incurred for payroll expenditures related to addressing the COVID‐19 health emergency.    Because most cities are still providing mostly the same level of certain services, which were provided before  the Pandemic (i.e. traffic safety, emergency response, animal control, etc…) we would generally anticipate  that a portion of public safety payroll would not be substantiated as being substantially dedicated to  mitigating or responding to the public health emergency.    In conclusion, the CARES Act does allow for the City to include payroll costs as part of the eligible  expenditures, however the Guidance indicates the CRF should not be a “windfall” for local governments, it  was intended to keep local governments in a similar situation they would have been in pre‐pandemic and  large increases in fund balances may contradict this goal. The City must be able to create and maintain  sufficient contemporaneous documentation as required by OIG‐20‐021, that is capable of being reviewed by  an independent third party or the Treasury Office of Inspector General and would be able to conclude in a  similar manner to the City.