The SMART Act And Its Impact to State and Local Governments

Published: June 01, 2020

SLED Market AnalysisCoronavirus (COVID-19) PandemicPolicy and Legislation

U.S. Senators Bob Menendez (D-N.J.) and Bill Cassidy, M.D. (R-La) have announced a bipartisan bill that would create a $500-billion fund to help state and local governments respond to the current public health and economic crisis, while maintaining essential services.

While the Republican-controlled Senate has not taken up the HEROES bill and President Trump has described it as "dead on arrival," several Republican senators are now speaking in favor of some form of aid, and a bipartisan group of senators has introduced its own legislation, the SMART Act, which would provide $500 billion to states and localities.

The State and Municipal Aid for Recovery and Transition (SMART) Fund builds upon the existing $150 billion set aside in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help states and local governments.  It expands eligibility to include counties and towns with populations of 50,000 or greater (the current threshold is 500,000), ensures every eligible entity receives additional funding, increases flexibility for states and local governments to use the funds to plug revenue losses due to the COVID-19 outbreak, and targets additional funding toward coronavirus hot zones to combat the pandemic head-on.

These funds can be used to help meet the current demand while helping communities transition towards reopening by expanding testing and contact tracing, providing additional resources to residents, local hospitals, small businesses and schools.  Additonally, the bill would provide greater flexibility for local governments to use the funding and help avoid requiring states to expand the size of state government and create new, unnecessary programs just to be able to spend emergency COVID assistance. 

Funding would be allocated through three equally divided tranches, with each state receiving a minimum of $2 billion combined from the first two tranches in addition to their allocation from the third tranche.

  • One-Third Based on Population Size.  Funding allocated to all 50 states, the District of Columbia, and U.S. territories in proportion to each state or territory’s percentage of the U.S. population.  Counties and municipalities each receive set asides for a combined total of one-third of their state’s allocation from this tranche.  Funding for this tranche will be distributed to counties and municipalities based on each county and municipality’s proportion of the state’s population.
  • One-Third Based on Infection Rates.  Funding allocated based on each state’s relative share of the nation’s infection rate.  States with disproportionately high infection rates will incur significantly higher expenses and will likely need to continue stay-at-home orders for longer periods, leading to larger revenue losses.  Counties and municipalities each receive set asides for a combined total of one-third of their state’s allocation from this tranche as well. Funding will be distributed to counties and municipalities based on each county and municipality’s proportion of the state’s infection rate for this tranche.
  • One-Third Based on Revenue Losses.  Funding allocated based on each state’s revenue loss in proportion to the combined revenue loss of all the states from Jan. 1, 2020, through Dec. 31, 2020.  States that took strong actions to curb the spread of the coronavirus should not face additional budget shortfalls for taking responsible action.  Counties and municipalities will each get a share of one-sixth of their state’s allocation for a combined total of one-third of their state’s allocation from this tranche.  Funding will be distributed to counties and municipalities based on each county or municipality’s revenue loss from Jan. 1, 2020, to Dec. 31, 2020, in proportion to the combined revenue loss for all counties and municipalities in the state over this period.  This is designed to ensure that adequate funding flows to counties and municipalities that are disproportionately affected relative to their population.