COVID-19 Federal Assistance e311


Lost Revenue & Revenue Replacement

How should a municipality calculate revenue loss associated with reductions in state level funding?

State-Level Funding

The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (“the Rule”) and Frequently Asked Questions (“FAQs”) address the issue of revenue losses resulting from reductions in State-level funding.  

The Supplementary Information that accompanies the Rule addresses General Revenue and the calculation of revenue losses.[1] Treasury notes specifically in its FAQs that:

General Revenue includes revenue from taxes, current charges, and miscellaneous general revenue. It excludes refunds and other correcting transactions, proceeds from issuance of debt or the sale of investments, agency or private trust transactions, and revenue generated by utilities and insurance trusts. General revenue also includes intergovernmental transfers between state and local governments, but excludes intergovernmental transfers from the Federal government, including Federal transfers made via a state to a locality pursuant to the CRF or the Fiscal Recovery Funds.[2]

This strongly suggests that local governments may include reductions in State-level funding when calculating revenue losses. However, local governments must consider whether the funds received from the State are excluded from the definition of General Revenue. For example, although utility revenue could be provided by the State as Intergovernmental Revenue, utility revenue is not General Revenue and is generally excluded from the calculation.[3]

In addition, municipalities may refer to the Appendix to Treasury’s July 19, 2021 FAQs,[4] which defines General Revenue within the Census Bureau’s Classification Structure of Revenue. The definitions provided there may help municipalities assess whether to include specific categories of revenue in loss calculations, and to plan accordingly.[5]

Calculating Revenue Loss

Treasury indicates that municipalities should calculate revenue loss at four points in time: December 31, 2020; December 31, 2021; December 31, 2022; and December 31, 2023. To calculate the extent of the reduction in revenue at each of these dates, recipients should follow a four-step process:

  • Step 1: Identify revenues collected in the most recent full fiscal year prior to the public health emergency (i.e., last full fiscal year before January 27, 2020), called the base year revenue.
  • Step 2: Estimate counterfactual revenue, which is equal to base year revenue * [(1 + growth adjustment) ^( n/12)], where n is the number of months elapsed since the end of the base year to the calculation date, and growth adjustment is the greater of 4.1 percent and the recipient’s average annual revenue growth in the three full fiscal years prior to the COVID-19 public health emergency.
  • Step 3: Identify actual revenue, which equals revenues collected over the past twelve months as of the calculation date.
  • Step 4: The extent of the reduction in revenue is equal to counterfactual revenue less actual revenue. If actual revenue exceeds counterfactual revenue, the extent of the reduction in revenue is set to zero for that calculation date. [6]

Spending Funding Received

After identifying the extent of reduction in revenue, municipalities can decide which government services they will support with American Rescue Plan Act (“ARP”) funds. According to Treasury’s Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) FAQs, “government services” can include, but are not limited to:

  • Maintenance of infrastructure or pay-go spending for building new infrastructure, including roads;
  • Modernization of cybersecurity, including hardware, software, and protection of critical infrastructure;
  • Health services;
  • Environmental remediation;
  • School or educational services; and
  • The provision of police, fire, and other public safety services.[7]

Notably, Treasury has stated that paying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgments would not be considered a provision of a government service (and thus would not be an authorized use of ARP funds).[8]

Last Revised: August 9, 2021

[1] Treas. Reg 31 CFR 35, at 54-60, available at:

[2] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.1, at 13, (emphasis added), available at:

[3] U.S. Bureau of the Census, Government Finance and Employment Classification Manual, at 4-5, available at:

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – Appendix, at 42, available at:

[5] Id.

[6] Treas. Reg 31 CFR 35, at 58, available at:

[7] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.8, at 15, available at:

[8] Id. (emphasis added).