ProgramCOVID-19 Federal Assistance e311
TopicsLost Revenue & Revenue Replacement
Does a municipality need to direct revenue replacement funds to the sources of lost revenue?
The ARP, which created the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”), does not expressly require recipients to direct CSLFRF funds to address revenue losses from one or more particular sources. Nor does the associated regulatory guidance indicate that specific amounts of CSLFRF funding must be directed to specific sources of revenue loss.
Rather, CSLFRF assistance can be used to address a broad range of issues. As noted in the US Department of Treasury’s (“Treasury”) Interim Final Rule (the “Rule”), which was published on May 17, 2021, this assistance may be used:
a) to respond to the public health emergency or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
b) to respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers;
c) for the provision of government services to the extent of the reduction in revenue due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency; and
d) to make necessary investments in water, sewer, or broadband infrastructure.
In addition, the Supplementary Information Discussion which accompanies the Rule states: “Within the eligible use categories outlined in the Fiscal Recovery Funds provisions of ARPA, State, local, and Tribal governments have flexibility to determine how best to use payments from the Fiscal Recovery Funds to meet the needs of their communities and populations (emphasis added).”
Treasury’s June 24, 2021, Frequently Asked Questions provide additional relevant information. Specifically, FAQ number 3.2 addresses revenue calculation and whether it should be calculated on an entity-wide basis or on a source-by-source basis (e.g. property tax, income tax, sales tax, etc.):
Recipients should calculate revenue on an entity-wide basis. This approach minimizes the administrative burden for recipients, provides for greater consistency across recipients, and presents a more accurate representation of the net impact of the COVID- 19 public health emergency on a recipient’s revenue, rather than relying on financial reporting prepared by each recipient, which vary in methodology used and which generally aggregates revenue by purpose rather than by source.
In summary, given Treasury’s emphasis on recipient flexibility and its entity-wide revenue loss calculation, a municipality should be able to use CSLFRF funding in its discretion for eligible purposes. Revenue replacement funds after the loss due to COVID-19 has been calculated should be used for the provision of government services.
Last Updated: June 29, 2021
 Treas. Reg. 35 CFR 31 at 7, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.
 Id. at 8.
 Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021) – FAQ #3.2, at 13, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.