Insights

April 18th- Municipal Law Update

April 20, 2020

Another week is behind us and everyone is getting antsy.  There is lots of talk about opening back up, but no real movement yet as far as we know.  Despite all the talk, some things seem to be moving the opposite direction.  As you are probably well aware, on April 15, 2020, Governor Wolf issued an Order requiring employees dealing directly with the public to wear masks.  Although the Governor’s office recommended municipalities comply to the extent possible, municipalities are exempt from the requirement to wear masks.

There are still some things to be doing in the meantime to plan ahead for the coming ramifications of the shutdown.  Most of you have incurred costs in response to Covid-19.  Now is the time to start thinking about reimbursement.  Many of you have will have a noticeable, if not drastic, slowdown in tax revenue.  Now is the time to do a monthly cash flow plan to determine how you will bridge any shortfalls in revenue over the next few months.  Some of you have loans with monthly payments.  Now is the time to think about deferral of principal and interest payments until your revenue starts to return to normal.  Below are some things to think about related to all three.

Emergency funding Relief from PEMA

PSATS recently held a virtual town hall to discuss the covid-19 situation that included a presentation from PEMA and updates on possible emergency funding relief for municipalities.  Below is a summary of key items presented:

  1. Any municipalities desiring to apply for emergency funding relief must complete the “Survey123” from the Pennsylvania Emergency Management Agency (“PEMA”).  If a municipality does not have the Survey123, they should contact the York County Emergency Management Coordinator as soon as possible to get the email and two attachments to fill out.  This will get the municipality on PEMA’s email list and give them notice of regular WebEx briefings from PEMA.  The WebEx briefings are designed to assist municipalities through the emergency funding process (which ultimately goes through the Federal Emergency Management Agency (“FEMA”)).
  2. The PEMA representative addressed a number of questions about what kinds of municipal costs would be eligible for FEMA funding and what kinds would not.  Below is a list of some of the expenses addressed:
    1. LIKELY TO BE ELIGIBLE: Expenses directly tied to combating the COVID-19 crisis are generally eligible for funding, such as the following:
      1. Purchasing personal protective equipment for employees (like medical masks)
      2. Overtime required for dealing with the COVID-19 crisis.  For example, if a police department needs extra officers to patrol an area because of closed businesses, the costs of that additional time is probably eligible.
    2. LIKELY TO BE INELIGIBLEIncreased operating expenses due to the COVID-19 disruption are generally not eligible for emergency funding from FEMA.  Some examples of likely ineligible expenses are the following:
      1. Upgrading computer equipment and/or software so employees can work from home.
      2. Extra time spent on normal tasks due to work disruptions/glitches (for example, if a part-time, hourly employee typically performs his/her duties in 15 hours per week, but now takes 20 hours to do the same work, the extra 5 hours is likely not eligible for FEMA funding).
      3. The cost of using extra vehicles to maintain social distancing is likely not eligible for FEMA funding if the use of the vehicles is for normal municipal duties.
  3. The PEMA representative did urge municipalities to request as much emergency funding that they think they could be eligible for.  He indicated that PEMA will act as the municipality’s advocate with FEMA.  He also indicated that the PEMA officials will help interested municipalities to navigate through the FEMA funding process.  Unfortunately, PEMA/FEMA emergency funding will not cover revenue shortfalls due to tax revenue collection delays or increased costs of simply doing regular business.  Those revenue shortfalls would need to be recovered with other means.
  4. The PEMA representative also urged municipalities seeking emergency funding to keep good records of the expenses incurred (this would include time sheets, receipts, invoices, etc.).
  5. The emergency funding discussed above was for grant funding that municipalities would not have to pay back.  Additional funding may be available to borrow through the Community Disaster Loan Fund.  We would encourage you to contact PEMA for additional information on that fund.

Budget Short-falls and Tax Anticipation Notes in Time of COVID-19

As you may have noticed in the section of this memo on emergency funding through FEMA, at present there is little currently available to municipalities to help cover added costs due the COVID-19 disruptions.  This includes cashflow shortages due to tax collection deadlines having been extended until July 15.  One option for covering the shortfall is a tax anticipation note (or “TAN”).  TANs are short-term loans extended to municipalities, with the expectation that they will be paid in full by the end of the fiscal year (which for most municipalities is Dec. 31).

Whether a TAN is a good option for your municipality will vary based upon a number of factors.  Below are a few aspects of the TAN requirements:

  • The total amount of TANs issued in a given year cannot exceed 85% of the amount of taxes levied for the current year.
  • The municipality must certify to the Commonwealth as to the estimated amount of tax revenues to be received during the period when the TAN will be outstanding. This estimate must be based on collection experience and current economic conditions of the municipality, i.e., it must take into account the current economic downturn.

There are also other federal tax implications to lending via TANs, so TANs should not be assumed to be a “silver bullet” for managing financial shortfalls from COVID-19.  Please contact us to discuss any shortfalls you expect and whether this option may work for your municipality.

Loan Deferrals

Almost all commercial lenders are offering their customers a deferral of principal and interest payments.  Most lenders are offering deferrals for up to three months with the deferred principal and interest payments rolled into the final payment on the maturity date.  For most borrowers this just requires contacting their lender.  There may also be many upcoming opportunities in the bond market as the federal reserve becomes more active buying municipal obligations.

PENNVEST has also recently announced a loan deferral program.  PENNVEST will allow its borrowers that are in good standing to defer principal and interest payments for up to three months.  Similar to commercial lenders, the deferred principal and interest payments will be rolled into the final payment on the maturity date.  Requests for a deferral must be submitted no later than September 1, 2020 and the offer to defer payments will apply only to principal and interest payments made in the calendar year 2020, so the last payment eligible for deferral would be due December 1, 2020.  You can click here to learn more about the PENNVEST deferrals or click here to go to the application for a deferral.

I hope you find this information useful.  Stay safe and as always do not hesitate to contact Andy Miller amiller@mpl-law.com or Doug Myers dmyers@mpl-law.com with ay Covid-19 related questions.

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