Spending Coronavirus Relief Fund Money Without a Legislative Appropriation

By Brian J. Skinner, Esq.

Recently, questions have arisen about whether Governor Jim Justice may spend money the state received from the Coronavirus Relief Fund (“Fund”) that was made available in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), without a specific appropriation by the State Legislature.¹  Earlier this year West Virginia received $1.25 billion from the Fund. Of particular criticism is governor’s plan to spend upwards of $50 million of the state’s allocation from the Fund on road repairs near health care facilities. Many, including Senator Joe Manchin argue that such a use of Fund moneys violates the spirit of the $150 billion Congress sent to states, counties and cities under the CARES Act.² This article will summarize the legal requirements related to the governor’s use of those funds without the involvement of the West Virginia Legislature.

The West Virginia Constitution provides in Article X, § 3 that “[n]o money shall be drawn from the treasury but in pursuance of an appropriation made by law.“ But this provision is silent as to whether the Governor may spend funds received from the federal government as part of disaster relief. Article VI, § 51 of the West Virginia Constitution, or the “Modern Budget Amendment” provides that the legislature “shall not appropriate any money out of the treasury except in accordance with the provisions of this section”, but fails to provide guidance as to whether federal funds received by the state may be spent without being included within a budget bill that contains “a complete plan of proposed expenditures and estimated revenues for the fiscal year.”

To fill this gap and to “carry out its responsibility for the enactment of all appropriations needed for the operation of state government” because of the “increased availability of and reliance on federal financial assistance has a substantial impact upon the programs, priorities and fiscal affairs of the state” the legislature sought to clarify and specify its role in appropriating federal funds received by the state. The Legislature accordingly sought to prescribe, by general law, “the required form and detail of the itemization and classification of proposed appropriations to assure that state purposes are served and legislative priorities are adhered to by the acceptance and use of such funds.” West Virginia Code § 4-11-1.

To this end the legislature requires that all federal funds received by the state must be deposited in and credited to special fund accounts and “shall be available for appropriation by the Legislature as part of the state budget.” W.Va. Code § 4-11-3. The governor is required to itemize in the state budget and in the budget bill all federal funds received or anticipated for expenditure. W.Va. Code § 4-11-4. The Legislature makes clear that spending units of state government may not “make expenditures of any federal funds, whether such funds are advanced prior to expenditure or as reimbursement, unless such expenditures are made pursuant to specific appropriations by the Legislature” with the following exceptions:

• Federal funds received by state institutions of higher education or by students or faculty members of such institutions for instructional or research purposes and federal funds received for student scholarships or grants-in-aid;
• Federal nondiscretionary pass-through funds which are earmarked in specified amounts or proportions for transmittal to local political subdivisions or to designated classes of organizations and individuals which do not require state-matching funds and do not permit discretion in their distribution by the receiving state spending unit;
• Federal funds made available to the state for costs and damages resulting from natural disasters, civil disobedience or other occurrences declared by the Governor as a state of emergency; and
• All federal funds received by the West Virginia department of highways or the West Virginia commissioner of highways.

W.Va. Code § 4-11-5 & 6.

In the event federal funds become available to the state for expenditure while the legislature is not in session and the availability of such funds could not reasonably have been anticipated and included in a budget approved by the legislature the governor may authorize, in writing, the expenditure of the funds as authorized by federal law and pursuant to the provisions of article two of chapter five-a.³  W.Va. Code § 4-11-5. However, the governor may not authorize the expenditure of such funds received for the creation of a new program or for a significant alteration of an existing program. If there is a question about whether an expenditure constitutes a new program or significant alteration of an existing program, while the legislature is not in session, the governor must seek the recommendation of the council of finance and administration,⁴ as created and existing pursuant to the provisions of W.Va. Code §5A-1-4.⁵  

As noted above, there is an exception to the general rule that the governor may not make expenditures of any federal funds without a specific appropriation by the Legislature when the federal government makes funds available to the state for costs and damages resulting from natural disasters, civil disobedience or other occurrences declared by the governor as a state of emergency. Funds appropriated by Congress from the Coronavirus Relief Fund would appear to fall into this exception since the funds were allocated to states and local governments to cover costs that “are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19).”

The U.S. Department of the Treasury has issued guidance interpreting these limitations on the permissible use of Fund payments. The guidance provides that the requirement that expenditures be incurred “due to” the public health emergency means that expenditures must be used for actions taken to respond to the public health emergency. Thus, so long as the expenditures from the Fund are related to the costs and damages resulting from the public health state of emergency, state law authorizes the Governor to expend the funds without a specific appropriation by the legislature.

Given the Department of Treasury’s guidance it is difficult to comprehend how road repairs could be considered a cost or damage resulting from the COVID-19 pandemic. Senator Manchin agrees stating “The use of CARES Act funding to fix highways is absurd” and that “I’ve yet to meet a pothole that has the coronavirus. These funds should be used to help struggling West Virginians right now, not as some political slush fund.” Even the governor’s legal experts expressed caution about the use of CARES Act funds to pay for road projects as qualifying for federal assistance. The law firm Bailey & Glasser LLP wrote that “[a] cautious approach should be taken before deciding whether to allocate [federal relief] funds to any particular project due to there being no specific mention of road or highways repairs in the list of eligible expenses set forth in Treasury’s guidance.” It is important to note that if federal auditors find that money from the Fund was misspent, it must be repaid to the U.S. Treasury Department.

The Department of Treasury guidance also indicates that moneys received from the Fund may be used for expenditures incurred to respond to second-order effects of the emergency. The guidance instructs that second-order effects include providing economic support to those suffering from employment or business interruptions due to COVID-19-related business closures. The Department of Treasury’s guidance includes a non-exhaustive list of examples of eligible expenditures including expenses associated with the provision of economic support in connection with the COVID-19 public health emergency, including:

• Expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures.
• Expenditures related to a State, territorial, local, or Tribal government payroll support program.
• Unemployment insurance costs related to the COVID-19 public health emergency if such costs will not be reimbursed by the federal government pursuant to the CARES Act or otherwise. expenditures related to the provision of grants to small businesses to reimburse the costs of business interruption caused by required closures.

It might be argued that some of the permissible uses of CARES Act funding are not directly related to the costs and damages of the public health state of emergency, but instead are “second-order effects of the emergency” and thus, are not subject to the state of emergency exception to the general rule that the governor cannot spend federal moneys without a specific appropriation by the legislature. See W. Va. Code § 4-11-5(d). This is especially true when the governor intends to spend the federal moneys on what would be considered a “new program” or “significantly altering an existing program.” Id. Expenditures related to the provision of grants to small businesses, a state or local government payroll support program, or unemployment insurance costs related to the COVID-19 public health emergency, would clearly be expenditures on a new or significantly altered existing program. In that case, the governor could not spend the money for such a purpose without a legislative appropriation.

¹ https://www.wvgazettemail.com/coronavirus/justice-defends-plan-to-use-100-million-of-federal-cares-act-funds-for-highways/article_34f3c523-5158-5505-9da4-ece7940d847e.html

² https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2020/08/07/critics-question-cares-act-spending-in-some-states?utm_campaign=2020-08-07+SD&utm_medium=email&utm_source=Pew

³ This article contained the budget section of the Division of Finance within the Department of Administration. The article was repealed by the Legislature in 2004 and the Division of Finance was transferred to the Department of Revenue and its authority is contained in W.Va. Code §§ 11B-2-1 et seq.

⁴ The Council of Finance and Administration serves the Department of Administration and the director of the budget in an advisory capacity for purposes of reviewing the performance of the administrative and fiscal procedures of the state, including the oversight of all federal funds. W.Va. Code §5A-1-4. The council is made up of the Secretary of the Department of Administration, the Secretary of Revenue, the Attorney General, the Treasurer, the State Auditor, three Senators and three members of the House of Delegates.

⁵ The citation contained in W.Va. Code §4-11-5 is incorrect. The Council of Finance and Administration is authorized in W.Va. Code §5A-1-4, not W.Va. Code §5A-1-3.

Brian J. Skinner is the former counsel to the West Virginia House of Delegates Committee on the Judiciary and counsel to the West Virginia Senate Minority Caucus. He has over a decade of experience as an adviser to legislators on legal and political issues related to pending legislation; providing research and legal analysis services to legislative committees; and preparing bills, resolutions, amendments, and other documents for the West Virginia Legislature.

This article contains general legal information and does not contain legal advice. H2C Public Policy Strategists, LLC is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.