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Q&A
Federal government clawback of $80 million FEMA grant
5:10:06
ยท
4 min
Council Member Justin Brannan questions Commissioner Preston Niblack about the recent federal clawback of an $80 million FEMA grant. They discuss the process of how the clawback occurred, the lack of notification from the federal government, and the city's response to this unprecedented action.
- The city became aware of the clawback when the cash balance dipped below zero
- The federal government withdrew the funds within the 5-day reversal window allowed by NACHA rules
- The city has filed a lawsuit against the federal government to dispute the clawback
Justin Brannan
5:10:06
Thank you, commissioner.
5:10:08
I wanted to jump right into the the federal funding clawback, that we saw earlier this month where $80,000,000 of FEMA grant money that was allocated appropriated by congress was clawed back and the city supposedly only became aware of this action because the cash balance dipped below zero.
5:10:33
Was there any notification provided to the city by our depository institution when this action occurred?
Preston Niblack
5:10:41
So the the transaction that would reverse the payment that had been made the two payments actually that had been made occurred around four in the afternoon on the eleventh for payments that had been deposited on the fourth.
5:10:58
The bank's batch process transactions during the day, so it probably would not have posted to our account till later that evening.
5:11:05
We saw it in the course of the morning review that the cash staff at the treasury take each morning.
5:11:13
We found we saw it around 7AM, verified what it was, and reported it they reported it to the treasurer, reported it to me, to OMB, and we reported it to city hall.
5:11:27
I'm not sure that there was much time for actual notification.
5:11:31
We have discussed with Citi who's our central treasury account holder sort of what steps might be possible in that regard.
5:11:41
It was an unprecedented action, obviously.
5:11:43
We've never seen that before.
5:11:45
So I think it took us all little bit unawares.
Justin Brannan
5:11:49
How was the federal government able to access funds in our account?
Preston Niblack
5:11:55
That that has been the question of the hour.
5:11:57
I I mean, think ultimately the answer really is the federal government regulates the the manages and runs the payment system and manages and oversees and regulates the the banks and is not necessarily subject to the same kind of controls that we might put in place on a private party.
5:12:16
It was within, and I think this is important to note, under the rules of the National Automated Clearing House Association, NACHA, payments can be reversed within five days.
5:12:29
So and under the code of federal regulation, in general the federal government is supposed to abide by NACHA rules.
5:12:38
There is provision in there for erroneous or duplicative transactions to be reversed.
5:12:47
I gather that the Trump administration is characterizing this as erroneous now, but we are disputing that, as you know, in court.
5:12:57
We filed filed lawsuit against the the Trump administration and the federal government
Jacques Jiha
5:13:01
for it.
Justin Brannan
5:13:01
So the law department the just just to clarify, the law department is suing basically for for the act.
5:13:07
The the money was was put back?
Preston Niblack
5:13:10
No.
5:13:10
The money is
Thomas Gogan
5:13:11
not Okay.
Justin Brannan
5:13:11
So the status what's the status of the 80,000,000 right now?
Preston Niblack
5:13:14
I I mean, it was withdrawn from our Okay.
Justin Brannan
5:13:18
So they didn't follow the NACHA rules then to put it back.
5:13:21
They're admitting it was erroneous, but they didn't put it back.
Preston Niblack
5:13:24
There was no obligation for them to put it back.
5:13:26
They were if it was if they're characterizing an erroneous payment, it can be reversed within five days of the initial deposit of business days under NACA rules.
Justin Brannan
5:13:37
But they're not saying that?
Preston Niblack
5:13:39
They're I have not I don't I have not been party to the whole lawsuit process here, so I know that there's been a a file we've we've filed a suit and they've made counterclaims, but I I honestly haven't Okay.
5:13:54
Read them.
David Carr
5:13:54
And are
Justin Brannan
5:13:55
there any are there contingencies being put in place to ensure that this won't happen again, or is there no way to prevent the federal government from raiding our account?
Preston Niblack
5:14:04
You know, I think it's under normal procedures that we have seen in the past.
5:14:10
If the federal government thinks that it has made a payment in error or thinks it's overpaid us or whatever, they'll notify us and we'll have an opportunity to respond or at least certainly put the money in the bank account.
5:14:24
So
Justin Brannan
5:14:26
So historically, they give you a heads up first.
Preston Niblack
5:14:28
Yes.
5:14:28
This did not happen in this instance.