Can a municipality include an increase in the property tax rate when calculating the average revenue for the past three years?

The U.S. Department of the Treasury (“Treasury”) issued the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule as part of the American Rescue Plan Act of 2021 (“ARP”). The Final Rule provides state and local governments with increased flexibility to pursue a wider range of uses, as well as greater simplicity so governments can focus on responding to the crisis in their communities and maximizing the impacts of their funds.

To show the overall effect of the pandemic on a recipient’s fiscal health, revenue loss must be calculated on an aggregate basis.[1] Treasury recognizes that recipients may have a reduction in revenue that is, over time, offset by other revenue such as tax increases. Therefore, the Final Rule “requires recipients that increased taxes to deduct the amount of increases to revenue attributable to such tax increase.”[2] In evaluating whether a tax change had the effect of increasing tax revenue, the Final Rule allows recipients to either calculate the actual effect on revenue or use estimates prepared at the time the tax change was adopted.[3] This approach allows recipients to more accurately capture revenue loss caused by the public health emergency. Because property tax revenue loss is an approved use of SLFRF, municipalities should follow the calculation process described in the Final Rule to determine the amount of loss and refer to the allowable calculation dates for accounting purposes.[4],[5]

In response to public comment, the Final Rule adds an option for recipients to use a standard allowance for revenue loss. This fixed loss amount is set at $10 million total for the entire period of performance, and recipients may use the standard allowance as an alternative to calculating revenue loss. The Final Rule states that “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.”[6]

Additional information may be provided when Treasury issues new Frequently Asked Questions (“FAQs”) specific to the Final Rule.[7] In addition, Treasury encourages municipalities to consider the guidance issued in the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule.[8]

Last Revised: February 1, 2022