Consequences of not properly overseeing COVID-19 federal funding: How a disaster can lead to a catastrophe

There is nothing uncommon about states receiving federal funding in the aftermath of a disaster. It is expected and makes sense as local and state budgets are burdened with these often extraordinary costs. According to a recent study by the National Oceanic and Atmospheric Administration (NOAA), the 2018 disaster bill amounted to $91 billion, and the trend of billion-dollar storms is only increasing in frequency. 

As former FEMA Administrator Brock Long’s mantra of “locally executed, state managed, and federally supported” is adopted by Peter Gaynor, current FEMA Administrator, it is difficult to fully understand just how local governments will execute and how the state will manage, but it is clear that the  federal government will support the response for COVID-19 with money, big money. For a good sense of how much the federal government has appropriated for the “War on COVID-19,” compare it to the funding allocated for prominent U.S. wars.

According to a 2010 Congressional Research Service Report, the U.S. spent $738 billion to fight the Vietnam War, $102 billion to fight the Persian Gulf War, and $784 billion to fight the Iraq war. The most costly war in U.S. history, World War II, cost over $4 trillion to fight. (All figures adjusted for inflation to reflect values as of FY2011.)

Congress has appropriated over $2 trillion to fight COVID-19 so far through three different pieces of legislation. As summarized by

1.H.R. 6074: Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 — “Enacted March 4, 2020. Provided $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak related to developing a vaccine, medical supplies, grants for public health agencies, small business loans, and assistance for health systems in other countries. Allowed for temporarily waiving Medicare restrictions and requirements regarding telehealth services.”

2. H.R. 6201: Families First Coronavirus Response Act — “Enacted March 18, 2020. Guaranteed free coronavirus testing, established paid leave, enhanced unemployment insurance, expanded food security initiatives, and increased federal Medicaid funding.”

3. H.R. 748: Coronavirus Aid, Relief, and Economic Security Act — “Enacted March 27, 2020. A $2 trillion coronavirus relief bill, which will send $1,200 to each American making $75,000 a year or less, add $600/week to unemployment benefits for four months, give $100 billion to hospitals and health providers, make $500 billion of loans or investments to businesses, states and municipalities, and $32 billion in grants to the airline industry, and more.”

Each legislation provides funding to various federal agencies, such as the Centers for Disease Control and Prevention (CDC) and Health and Human Services (HHS), to in turn provide grants or loans to states, local governments, businesses, and hospitals to respond to COVID-19. With state and local governments receiving multiple sources of funding either directly or indirectly and no central coordination, they will likely have difficulty managing these funds. More importantly, how do they smartly spend this funding so that they do not end up with 18,000 vacant hospital beds or an untouched convention center-turned-alternate care site with no funding source (except for general revenue) to pay for it? For many state and local governments, this situation, or ones like it, can be a financial catastrophe. 

Available federal funding sources

The largest funding source available is outside the above three pieces of legislation. Public Assistance, funded by FEMA, is a constant program in all major disaster declarations. Public Assistance (PA) provides funding for certain response activities, from debris removal to the repair of wastewater facilities. 

For COVID-19, President Trump declared a National State of Emergency, triggering Public Assistance for every state in the country, limited to emergency protective measures, or Category B for those in the disaster recovery field. 

Emergency protective measures are activities needed to save the lives of or protect individuals, a broad and vague description. Costs to buy ventilators and PPE, first responder overtime, the costs of hotel rooms for first responders, etc., are all eligible costs for this funding. The only downsides are that the documentation requirements are relatively extensive and there is a 25% cost share requirement. However, there is no cap to this funding. As long as you can provide documentation to back up your claimed costs, the funding for these costs will get obligated in a project and the state will be responsible for reimbursement. 

Another downside: As PA is the funding of last resort (meaning that if there is another source of funding available for the claimed activity), FEMA will not pay for those costs. For example, after a hurricane, a state-owned road is washed out. If that road is eligible for and receives a federal Highway Safety grant for repairs, the state cannot claim those costs for FEMA funding. In short: No double-dipping, and if the money is available elsewhere, start walking. 

For COVID-19, we are not seeing many roads getting washed out. However, we are seeing a lot of costs for purchases that are covered not only by PA but also by a couple of other sources as described below.

The above is certainly not an exhaustive list of the supplemental funding available for the response to COVID-19. The federal response briefly outlined above is truly remarkable. However, as you can see, the allowable costs for each funding source seem to deeply overlap with one another. Some federal agencies are starting to put together requirements for this funding, from reporting to reconciliation procedures; however, most have not made any such requirements for how to oversee this grant funding. 

How can local and state governments, who are already overwhelmed and may not have the ability or infrastructure to administer this amount of funding, be expected to oversee or monitor multiple funding sources for such a large event? Here are some recommendations. 

1. Local and state governments need to evaluate organizational capabilities and capacity. Some funding will be provided directly to local governments, and some will be provided through the state to the local government. Once funding is received, multiple agencies may be involved in the implementation of grant funding. Mostly likely the entity’s emergency management agency, department of health, law enforcement, education, and other impacted agencies will have access to federal funds as a result of COVID-19. Some agencies within may not have the financial management infrastructure needed to implement potentially millions in unexpected grant funding. For example, additional personnel, purchase of grant management systems, and government accountability/transparency software or other support may be needed to properly manage, monitor and oversee these funds. Each state and local government agency must evaluate its capabilities and capacity to manage these funds, as doing so will be crucial to a successful financial recovery. 

2. Ensure coordination and communication. No matter how your entity is organized, there will inevitably be multiple departments utilizing grant funding. To ensure that your entity is fully leveraging all federal funding, the all divisions, departments, and groups receiving this funding need to communicate and plan program design together. For example, if your entity incurred $1 million in PPE costs, it would be poor program design to have your Department of Health allocate $1 million of its CDC funding and your Department of Emergency Management allocate $1 million of its EMPG funding to the costs of PPE. The two departments need to coordinate and communicate in order to maximize the use of all potential funding sources.

3. Task force will coordinate across the enterprise. In order to ensure that your entity properly manages all of the available federal funds, it should consider forming a task force.  This task force can act as a centralized clearinghouse within your entity to orchestrate a cohesive design among all grant programs. A task force can monitor all funding sources coming to the state or its local jurisdictions, determine eligible costs among grants, and determine if there are areas where redundancy for costs is necessary or where redundancy would be a detriment to recovery. The task force may even provide oversight to implementing departments on program design or allocations, or provide technical assistance for grant management, internal controls, process mapping, and any other operational processes.

In conclusion, with an increasing emphasis on governmental accountability and transparency and ensuring that all grant funding is used as intended, state and local governments must be more diligent with the management of all federal funding provided for COVID-19. Properly trained personnel and strong systems, processes, and controls will be crucial to ensuring no negative audit findings and subsequent de-obligations. To support this effort, we strongly recommend reviewing organizational structure, ensuring coordination between implementing departments, and formalizing a centralized task force to oversee all funding for COVID-19. 

For more information, visit CohnReznick’s FEMA PA funding resource page and Coronavirus Resource Center


Amanda Campen, Senior Manager, CohnReznick Government Advisory, Emergency Management



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Coronavirus Resource Center

This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.