By Bob Kaufmann, CPA

As most of us sit at our makeshift home offices and adjust to the new normal of working from home, it is already evident the immediate impact COVID-19 is having on our surrounding communities. Although there are some positives; being around loved ones, pets, and no traffic for those that still have to drive every so often, the majority is overwhelmingly negative. Small businesses and the hospitality industry have taken the brunt of the pandemic thus far, but what is the impact of COVID-19 on local governments?


Governments should anticipate a dip in revenue during the current year and amend budgets accordingly. With the increase in unemployment and many residents already living paycheck to paycheck prior to the pandemic, there will be decreases in revenue that are both recoverable and non-recoverable. For example, governments who charge an earned income tax should anticipate a decrease from the prior year as this is not a recoverable source of revenue. Additionally, it is very likely that transfer taxes take a dip as people work to secure existing homes and the housing market softens.

The good news is some of the decline in revenue can be recovered later. However, it is likely that this could take until next year or beyond. It can be anticipated that many residents will fall behind on their real estate taxes, sewer, and trash bills. The dilemma that management and board members will face is whether or not it is ethical to charge late fees, penalties, and interest on these past due fees. If this is not something already being discussed at your monthly meeting, now would be the time to consider bringing it up and considering policy amendments. We have seen examples of both Federal and State governments extending deadlines for taxpayer generated revenue collection, placing moratorium on foreclosures, and other out of the ordinary actions. Local governments may find it necessary to follow suit.

Federal assistance

Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), much needed assistance will be provided to local governments to supplement lost revenue and cover expenditures incurred as a direct result of the pandemic. The three areas of the CARES Act most beneficial to local governments are the economic stabilization fund, the COVID-19 relief fund, and education stabilization fund.

The CARES Act allocates $454 billion to the economic stabilization fund. The fund permits the US Treasury to purchase obligations of local governments – this will help governments that had planned on issuing debt that may have run into some trouble in the current market due to the impacts of the COVID-19. It only permits the Treasury to invest in securities that mature in greater than 6 months and therefore will not help with short term tax revenue anticipation notes.

The CARES Act allocates $150 billion to the COVID-19 relief fund. States can apply for aid and will receive no less than $1.25 billion each. Local governments will be able to apply to the state for pass through funding related to the costs incurred for necessary expenditures due to the public health emergency that were not accounted for in their most recent budget.

The CARES Act allocates $30.75 billion to the education stabilization fund with $13.5 billion earmarked for elementary and secondary education of which 90% must be passed through directly to the schools/districts. Application for these funds is more inclusive than the prior two mentioned above and include the following activities:

  • efforts by local schools that pertain to the coordination and preparation with State, local, Tribal, and territorial public health departments in responding to the COVID-19 (p. 758).
  • assisting principal’s/school leaders with necessary resources for the operation of schools.
  • assistance for low-income students, ethnic minorities, homeless students, and students of foster care.
  • training/professional development of local school staff regarding decreasing the spread of contagious diseases.
  • supplies for sanitizing facilities
  • planning for long-term closures (e.g. meals for students, technology for online learning, continuation of educational services etc.)
  • providing mental health services
  • activities for learning over the summer
  • other activities necessary for the continuation of educational services for local schools.

Federal expenditures

Many federal programs have issued guidance or Q&As about expenditures that are allowable under their program as it relates to COVID-19. It is recommended that management review these issuances for any federal awards the government has available help lessen the burden on operating budgets. Additionally, there is guidance for delays and reporting deadlines and audit due dates. As each federal program varies, it is imperative that management review each program to ensure they are still in compliance with their federal awards.

The professionals at Barbacane, Thornton & Company continue to follow the evolving nature of the issues noted above and we will update our information as it becomes available.

If you have questions or would like assistance with developing strategies to manage in a changing Covid-19 environment be sure to contact us and one of our skilled professionals will be happy to work with you.

Barbacane, Thornton & Company is a highly regarded, regional certified public accounting and consulting firm specializing in auditing and tax services for government agencies and nonprofits.