Did a large Texas county have to share its direct CARES Act COVID relief money with smaller cities inside it?

Plain-English summary

When Congress passed the CARES Act in March 2020, it created the Coronavirus Relief Fund (CRF) and appropriated $150 billion to help states, territories, tribal governments, and certain large local governments pay for necessary but unbudgeted costs of the COVID-19 emergency (42 U.S.C. section 801). The CRF sent direct payments from the U.S. Treasury only to "units of local government," which the statute defines as counties and cities with populations over 500,000 (section 801(b)(2), (g)(2)). When a large local government took a direct payment, the state's own allocation was reduced by 45 percent of that local government's per-capita share (section 801(c)(5)). In Texas, the state received about $11.24 billion, allocated roughly $5.06 billion to local governments, and after six cities and twelve counties took $3.2 billion in direct payments, about $1.85 billion was left for the state to make available to smaller cities and counties, which Texas distributed on a $55-per-capita basis.

Senator Brandon Creighton asked the AG about Montgomery County, a county over 500,000. The Senator explained that of the twelve counties that received direct CRF funding, all but one followed the state's $55-per-capita method for distributing money to the local governments within their jurisdiction, but Montgomery County used its own parameters instead of the Treasury's or the state's method. As a result, some smaller jurisdictions inside the county did not get what the Senator viewed as their equitable share, and they were also ineligible for the separate state allocation aimed at jurisdictions under 500,000. The Senator asked which distribution requirement governs and how an under-500,000 jurisdiction inside an over-500,000 county should receive its equitable share.

The AG concluded that the CRF statute does not answer the question the way the complaint assumed, because it does not impose a redistribution duty at all. Apart from limiting the types of expenses the money can cover, the CRF does not tell a direct-recipient unit of local government how to use the funds, does not require it to redistribute funds to the local governments within its borders, and does not impose any methodology for doing so (42 U.S.C. section 801(a)-(g)). The U.S. Treasury, in its guidance, encouraged states to transfer funds to local governments that did not receive a direct payment and to use the same 45-percent per-capita allocation to "ensure equitable treatment among local governments of all sizes" (86 Fed. Reg. 4182-01). But Treasury also consistently advised that a direct recipient is "not required to transfer funds to smaller cities within the county's borders." Because no statute required Montgomery County to redistribute its CRF funds to other jurisdictions, the AG could not conclude the county's chosen methodology was contrary to law. The opinion addressed only the $150 billion CRF and did not reach the separate funding under the American Rescue Plan Act of 2021.

What this means for you

If you are a county that received direct CRF money

Based on this opinion, the CARES Act did not legally require you to pass your direct Coronavirus Relief Fund payment through to the smaller local governments inside your borders, and it did not dictate a method for doing so. Treasury encouraged equitable transfers using a 45-percent per-capita approach, but the AG read that as encouragement, not a legal command, so the AG would not call a county's own distribution method unlawful.

If you are a smaller city or jurisdiction inside a large county

The opinion means the federal CRF statute did not entitle you to a particular pass-through share from the county's direct payment. The AG noted that, in Texas, the state separately made about $1.85 billion available to cities and counties under 500,000 on a $55-per-capita basis, though the Senator's request explained that some jurisdictions inside Montgomery County were treated as ineligible for that state allocation.

If you administer pandemic relief funds

The AG treated the redistribution question as governed by the CRF statute and Treasury guidance, not by a binding redistribution formula. The opinion is limited to the $150 billion CRF under the CARES Act and does not address later funding under ARPA-21.

Common questions

Q: Did a large county have to share its direct CARES Act relief money with smaller cities inside it?
A: No. The AG concluded that 42 U.S.C. section 801 does not require a direct-recipient unit of local government to redistribute its funds, and imposes no method for redistribution.

Q: Who got direct payments from the Coronavirus Relief Fund?
A: Counties and cities with populations over 500,000, defined as "units of local government." Their direct payments reduced the state's allocation by 45 percent of the local government's per-capita share.

Q: Wasn't there a 45-percent per-capita rule?
A: Treasury encouraged states to use that same 45-percent per-capita allocation to ensure equitable treatment, but it advised that a direct recipient is not required to transfer funds to smaller cities within the county. The AG treated it as guidance, not a binding requirement.

Q: Was Montgomery County's distribution method illegal?
A: The AG could not conclude it was contrary to law, because no statute required the county to redistribute the funds to other jurisdictions within it.

Q: Does this opinion cover the later American Rescue Plan money?
A: No. It is limited to the $150 billion Coronavirus Relief Fund under the CARES Act and does not address appropriations under ARPA-21.

Background and statutory framework

The CARES Act (Pub. L. No. 116-136) created the Coronavirus Relief Fund and appropriated $150 billion (42 U.S.C. section 801(a)(1)) for necessary but unbudgeted COVID-19 expenditures, originally for March 1 through December 30, 2020, later extended to December 31, 2021 (Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, section 1001). After reserving amounts for territories and tribal governments, the Fund allocated $139 billion to the states based on population, with no state receiving less than $1.25 billion (section 801(a)(2), (c)(1)-(2)(A)). From that amount, the Treasury made direct payments to larger units of local government, defined as counties and cities with populations over 500,000 (section 801(b)(2), (g)(2)), with each direct payment reducing the state's allocation by 45 percent of the unit's per-capita share (section 801(c)(5)) and the unit certifying its use complied with section 801(d) (section 801(e)).

Beyond the limits on authorized expenses, the CRF does not tell a direct-recipient unit of local government how to use the funds, does not require redistribution to the local governments within its borders, and imposes no redistribution methodology (section 801(a)-(g)). Treasury guidance encouraged states to transfer funds to non-recipient local governments using the same 45-percent per-capita allocation to ensure equitable treatment, but consistently advised that a direct recipient is not required to transfer funds to smaller cities within the county (86 Fed. Reg. 4182-01; see 42 U.S.C. section 1302(a) on Treasury rulemaking). Because no statute required Montgomery County to redistribute its CRF funds, the AG could not conclude its methodology was contrary to law. The opinion is limited to the CRF and does not address ARPA-21 (Pub. L. No. 117-2).

Citations and references

Statutes and guidance:

• 42 U.S.C. § 801 (Coronavirus Relief Fund; direct payments to units of local government over 500,000; 45% offset)
• CARES Act, Pub. L. No. 116-136, 134 Stat. 281 (2020)
• Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, Tit. X, § 1001 (spending period extended to Dec. 31, 2021)
• Coronavirus Relief Fund guidance, 86 Fed. Reg. 4182-01 (Jan. 15, 2021) (a direct recipient is not required to transfer funds to smaller cities within the county)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0405
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2022/kp-0405.pdf

Original opinion text

April 14, 2022

The Honorable Brandon Creighton
Chair, Committee on Higher Education
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. KP-0405

Re: Proper method for distribution of Coronavirus Relief Funds in a jurisdiction with a population under 500,000, but within a county with a population over 500,000 (RQ-0431-KP)

Dear Senator Creighton:

You ask about Montgomery County's redistribution of certain federal funds it received under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.¹

In March 2020, Congress passed the CARES Act to respond to the economic hardships caused by the COVID-19 pandemic. See CARES Act, Pub. L. No. 116-136, 134 Stat. 281 (2020) (to be codified in various titles of the U.S.C.). As part of the CARES Act, Congress created the Coronavirus Relief Fund (the "CRF" or "Fund"). See generally 42 U.S.C. § 801. From the Fund, Congress appropriated $150 billion to states, territories and tribal governments, and certain local governments to fund necessary, but unbudgeted, expenditures the governments incurred due to the public health emergency. Id. § 801(a)(1) (appropriating $150 billion), (d)(1)-(3) (listing three factors limiting use of funds for the period March 1, 2020, to December 30, 2020); see also Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, Tit. X, § 1001, 134 Stat. 1182 (2021) (amending section 801(d)(3) to extend the period to December 31, 2021).

¹ Letter from Honorable Brandon Creighton, Chair, Senate Comm. on Higher Educ., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (July 20, 2021), https://www2.texasattorneygeneral.gov/opinions/opinions/51paxton/rq/2021/pdf/RQ0431KP.pdf ("Request Letter").

The CRF contains several methodologies for distributing the $150 billion. After reserving specific amounts for U.S. territories and tribal governments, it allocates $139 billion for direct payments to the 50 states based on population with no state receiving less than $1.25 billion. See 42 U.S.C. §§ 801(a)(2)(A)-(B) (reserving $3 billion to territories and $8 billion to tribal governments), 801(c)(1)-(2)(A) (providing for minimum payment to the states based on population). From the $139 billion amount, the Fund authorizes direct payments from the U.S. Treasury to larger units of local governments. Id. § 801(b)(2). It defines "unit of local government" as counties and cities with populations in excess of 500,000. Id. § 801(g)(2) (defining unit of local government to mean "a county, municipality, town, township, village, parish, borough, or other unit of general government below the State level with a population that exceeds 500,000"). A direct allocation from the U.S. Treasury to a unit of local government reduces the allocation for the state in which the local government is located by an amount equal to 45% of the unit of local government's per capita share of the state's allocation.² Id. § 801(c)(5); see also id. § 801(e) (requiring a unit of local government to certify that its proposed use of the funds is consistent with the limitations in section 801(d)).

You tell us the State of Texas established a state funding methodology of $55 per capita for the jurisdictions below the 500,000 population threshold.³ See Request Letter at 1. You also tell us that "[o]f the twelve counties that received direct CRF funding . . ., all except for one followed the state's $55 per capita methodology for distributing funds to the local governments within their jurisdiction." Id. You explain that Montgomery County distributed funding to local governments within its jurisdiction under its own parameters and "not the methodology established by the Treasury or the State." Id. As a result, those local governments "did not receive their equitable share of CRF funding and were also ineligible from receiving the state's allocation directed for jurisdictions with under a 500,000 population." Id. You ask about the correct distribution requirement as between the Treasury, state, or county, and about how a jurisdiction with a population under 500,000, but within a county with a population over 500,000 should receive their allotted equitable share of CRF funds.⁴ Id.

² Texas received $11.24 billion and allocated 45 percent of that total—approximately $5.06 billion—to local governments. Of that $5.06 billion, six cities and 12 counties, as eligible units of local government, received direct payments from the Fund totaling $3.2 billion, leaving approximately $1.85 billion for Texas to make available to cities and counties below the requisite population. See Letter from Honorable Greg Abbott, Gov., State of Tex., to Cnty. & City Leaders at 1 (May 11, 2020) ("Abbott Letter"), https://gov.texas.gov/uploads/files/press/Counties_Cities_CRF_Final.pdf (on file with the Op. Comm.).

³ See id. at 2 ("The first allocation from the $1.85 in local funds will be made available to these cities and counties on a $55 per capita allotment."); see also generally Tex. Dep't of Emergency Mgmt., Coronavirus Relief Fund, https://tdem.texas.gov/crf/.

⁴ In 2021, Congress passed the American Rescue Plan Act of 2021 ("ARPA-21"), which continues and modifies certain benefits under the CARES Act. See ARPA-21, Pub. L. No. 117-2, Tit. IX, Subtit. M, § 9901, 135 Stat. 4 (2021). As you ask only about distribution of the $150 billion under the CRF, we limit this opinion to that distribution and do not address any additional appropriations made by APRA-21. See Request Letter at 1.

Other than its limitation on the types of authorized expenses, the CRF does not tell a unit of local government receiving a direct payment how to use the funds. See generally 42 U.S.C. § 801(a)-(g). No language in the CRF statute requires a unit of local government to redistribute its received funds to the local governments within its borders. See id. Similarly, no language imposes a methodology on a unit of local government to redistribute funds to the local governments within its borders. See id. The U.S. Treasury encouraged states to transfer funds to those local governments that did not receive a direct payment and to use the same 45% per capita allocation to "ensure equitable treatment among local governments of all sizes." Coronavirus Relief Fund for States, Tribal Governments, and Certain Eligible Local Governments, 86 Fed. Reg. 4182-01, 4187, 4190 (Jan. 15, 2021) (frequently asked questions Nos. A. 4, 33). Yet, the U.S. Department of Treasury has consistently advised that a direct fund recipient is "not required to transfer funds to smaller cities within the county's borders." Id. at 4188 (frequently asked questions No. A. 6); see also id. 4182 (noting the guidance is unchanged from the frequently asked questions document dated October 19, 2020); 42 U.S.C. § 1302(a) (authorizing the U.S. Treasury Secretary to adopt rules "necessary to the efficient administration of the functions with which [he] is charged"). Accordingly, as no statute requires Montgomery County to redistribute CRF funds to other jurisdictions within its jurisdiction, we cannot conclude that the methodology it used is contrary to law.

S U M M A R Y

In the 2020 Coronavirus Relief Fund ("CRF"), the U.S. Congress appropriated $150 billion to assist states, territories and tribal governments, and certain local governments to fund necessary but unbudgeted expenditures the governments incurred because of the COVID-19 public health emergency. Texas cities and counties with populations exceeding 500,000 were eligible for a direct payment of CRF funds from the U.S. Treasury. The CRF did not expressly require a direct recipient to redistribute its CRF funds to local governments within its jurisdiction and did not establish a methodology by which to redistribute its CRF funds. Accordingly, we cannot conclude a particular direct recipient's redistribution methodology is contrary to law.

Very truly yours,

KEN PAXTON
Attorney General of Texas

BRENT E. WEBSTER
First Assistant Attorney General

LESLEY FRENCH
Chief of Staff

MURTAZA F. SUTARWALLA
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee