Can municipalities apply for less than their total calculated revenue loss under the ARP's revenue replacement provision (H.R. 1319, Subtitle M, § 603(c)(1)(C)), e.g. seeking $5 million in revenue replacement funds out of $19 million total revenue lost?

One of the eligible uses under the American Rescue Plan Act (“ARP”) is for the provision of government services to the extent of revenue loss due to the pandemic.[1] The U.S. Department of the Treasury’s (“Treasury”) Final Rule on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) states: “under the revenue loss eligibility use category, recipients have broad latitude to use funds for government services up to their amount of revenue loss due to the pandemic.”[2] The Final Rule does not require municipalities to use a specific amount towards the provision of government services (up to their amount of revenue loss due to the pandemic) and does not specifically address situations in which a municipality applies for the replacement of less than the total calculated revenue loss.

The Final Rule provides recipients the option to take a standard allowance for revenue loss or to apply the calculation of revenue loss. The Final Rule states:

[R]ecipients will be permitted to elect a fixed amount of loss that can then be used to fund government services. This fixed amount, referred to as the “standard allowance,” is set at $10 million total for the entire period of performance. Although Treasury anticipates that this standard allowance will be most helpful to smaller local governments and Tribal governments, any recipient can use this standard allowance instead of calculating revenue loss pursuant to the formula above, so long as recipients employ a consistent methodology across the period of performance (i.e., choose either the standard allowance or the regular formula). Treasury intends to amend its reporting forms to provide a mechanism for recipients to make a one-time, irrevocable election to utilize either the revenue loss formula or the standard allowance.

The $10 million level is based on average revenue loss across state and local governments, taking into consideration potential variation in revenue types and losses and continued uncertainty faced by many recipients regarding revenue shortfalls.[3]

Treasury opted for a “standard allowance” to advance goals of simplicity, flexibility, and administrability. For recipients that choose it, the “standard allowance” cannot exceed the municipality’s total award amount. Recipients that select the standard allowance may use that amount – in many cases their full award – for government services, with streamlined reporting requirements.[4]

Restrictions on the use of CSLFRF apply to all eligible use categories, including those used for the provision of government services to the extent of the reduction in the recipient’s general revenue due to the public health emergency. These restrictions are:

(A) statutory restrictions under the ARPA, which include 1) offsetting a reduction in net tax revenue, and 2) deposits into pension funds, and (B) other restrictions on use, which include 1) debt service and replenishing reserves, 2) settlements and judgments, and 3) general restrictions. These restrictions apply to all eligible use categories; however, some restrictions apply only to certain types of recipient governments, and recipients are advised to review the final rule to determine which restrictions apply to their type of government (e.g., state, territory, Tribal government, county, metropolitan city, or nonentitlement unit of government).[5]

Last Revised: February 16, 2022