How should a municipality account for component government units, e.g., 911 agency, when calculating revenue?

Municipalities should generally include revenue from component government units in their calculations of revenue loss for the purposes of accessing revenue replacement funds from the Coronavirus State and Local Fiscal Recovery Funds ("CSLFRF").

The U.S. Department of the Treasury (“Treasury”)’s Final Rule implementing CSLFRF defines general revenue based on the components of “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances.[1] The Final Rule defines the term “general revenue” as follows:

General revenue means money that is received from tax revenue, current charges, and miscellaneous general revenue, excluding refunds and other correcting transactions and proceeds from issuance of debt or the sale of investments, agency or private trust transactions, and intergovernmental transfers from the Federal Government, including transfers made pursuant to section 9901 of the American Rescue Plan Act. General revenue also includes revenue from liquor stores that are owned and operated by state and local governments. General revenue does not include revenues from utilities, except recipients may choose to include revenue from utilities that are part of their own government as general revenue provided the recipient does so consistently over the remainder of the period of performance. Revenue from Tribal business enterprises must be included in general revenue.[2]

Further, the Final Rule defines “tax revenue” in a manner consistent with the Census Bureau’s definition of the term, with certain changes (i.e., inclusion of certain intergovernmental transfers). Current charges are defined as “charges imposed for providing current services or for the sale of products in connection with general government activities.” They include revenues such as those produced by public education institutions, public hospitals, and toll revenues. Miscellaneous general revenue comprises all other general revenue of governments from their own sources (i.e., other than utility and insurance trust revenue), including rents, royalties, lottery proceeds, and fines.[3]  

The Final Rule establishes the process for accounting for general revenues that are to be considered by a recipient for the purposes of the revenue loss calculation, with two exceptions: recipients that operate utilities which are part of their own government may choose whether to include revenue from these utilities in their revenue loss calculation, and revenue from recipient-owned liquor stores should be considered part of general revenue.[4]

In addition, the Final Rule excludes “refunds and other correcting transactions and proceeds from issuance of debt or the sale of investments, agency or private trust transactions, and intergovernmental transfers from the Federal Government, including transfers made pursuant to section 9901 of the American Rescue Plan Act” from its definition of “general revenue.”[5] These activities are excluded to focus on sources generated from economic activity to support government services, rather than to account for a particular activity.[6]

All revenues included in the definition of general revenue are to be aggregated and calculated at the recipient level, rather than on an agency, fund, or revenue stream basis. Only the recipient itself should calculate revenue loss, as it is the aggregate revenue reduction of the recipient due to the public health emergency that is the critical figure to demonstrate declines in the recipients’ overall ability to pay for governmental services.[7] Likewise, the “provision of government services” eligible up to the amount of the recipient’s revenue loss can be provided generally on such government services, irrespective of the loss demonstrated by any specific agency, or fund.[8]

Dependent units of government, according to the U.S. Census Bureau Manual, lack “separate existence [which] is not attributed to entities lacking either fiscal or administrative independence.” Such governmental entities that lack fiscal or administrative independence, or the following characteristics, should likely generally be considered part of the recipient’s unit of government for the purposes of calculating revenue loss:

1. Control of the agency by a board composed wholly or mainly of parent government officials.
2. Control by the agency over facilities that supplement, serve, or take the place of facilities ordinarily provided by the creating government.
3. Provision that agency properties and responsibilities revert to the creating government after agency debt has been repaid.
4. Requirements for approval of agency plans by the creating government.
5. Legislative or executive specification by the parent government as to the location and type of facilities the agency is to construct and maintain.
6. Dependence of an agency for all or a substantial part of its revenues on appropriations or allocations made at the discretion of another state or local government.
7. Provision for the review and the detailed modification of agency budgets by another local government. County review of agency budgets in connection with statutory limitations on tax rates, however, is not, by itself, sufficient to establish lack of fiscal autonomy.[9]

For areas of uncertainty, the municipality may choose to assess the component unit in question and evaluate its revenue sources to understand whether they meet the standard of general revenue. As the definition of the General Revenue from Own Sources is based on the Census Bureau’s definition, the Census Bureau’s Government Finance Classification Manual can also be referenced in determining the correct classification of revenue.