COVID-19 Federal Assistance e311


Lost Revenue & Revenue Replacement, Program Administration

Our state transfers funds from utilities to the muicipality’s general fund. May a municipality calculate the decrease in a budget transfer from utilities to the general fund as “lost revenue”?

Under the U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”), the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) provided through the American Rescue Plan Act (“ARP”) may permit municipalities to calculate the decrease in budget transfer from utilities to the general fund as lost revenue, if the lost revenue in question is not the type of utility revenue that is excluded in the Rule’s definition of “general revenue.”


Treasury states that “revenue generated by utilities”[1] is excluded from the Rule’s definition of “general revenue.”[2] However, the U.S. Census Bureau’s (the “Census Bureau”) Government Finance and Employment Classification Manual (the “Manual”) indicates that not all revenue from utilities is outside the definition of “general revenue,” stating:

Utility revenue relates only to the revenue from sales of goods or services and by-products to consumers outside the government. Revenue arising from outside other aspects of utility operations is classified as general revenue (e.g., interest earnings).[3]

Treasury recently expanded on the Census Bureau’s definition, stating:  

According to the Census Bureau’s Government Finance and Employment Classification manual, utility revenue is defined as “[g]ross receipts from sale of utility commodities or services to the public or other governments by publicly-owned and controlled utilities.[4]

This includes revenue from operations of publicly owned and controlled water supply systems, electric power systems, gas supply systems, and public mass transit systems (see pages 4-45 and 4-46 of the Manual for more detail).

Except for these four types of utilities, revenues from all commercial-type activities of a recipient government (e.g., airports, educational institutions, lotteries, public hospitals, public housing, parking facilities, port facilities, sewer or solid waste systems, and toll roads and bridges) are covered by the Rule’s definition of “general revenue.”[5]

The Census Bureau also provides a list of revenue defined as “utility revenue,” which includes:

[R]eceipts from direct sales of commodities and services; rentals from operating property; customers’ forfeitures and penalties; and charges for installing and servicing connections and meters.[6]

The Census Bureau states that the definition of “utility revenue” excludes:

[I]dentifiable amounts for commodities or services furnished to the parent government, its agencies, or other utilities of the same government (intragovernmental transfers); revenue from investments or other capital transactions (report Interest Earnings, at code U20 and recorded profits on their sale at Miscellaneous General Revenue, NEC, code U99); and lease rentals or other earnings from nonoperating utility property (use Rents, code U40).

Also excludes special assessments for utility improvements, including water impact fees (report at Special Assessments, code U01); contributions from parent government (another intragovernmental transfer); financial aid from other governments not representing sale of utility good or services (report at appropriate Intergovernmental Revenue code); taxes imposed on sale of utility commodities and services (report at Public Utilities Tax, code T15); and contributions from utility employees for retirement system administered by same government (report at Employee Contributions, code X01 or X02).[7]

According to the Treasury guidance and related Census Bureau definitions, municipalities should examine the source of utility revenue and determine whether that revenue stems from any source that is not defined as general revenue and thus not likely to qualify as revenue loss. If the utility revenue was not sourced from an exclusion as defined by Treasury and the Census Bureau above, it could be permissible to calculate it as lost revenue.

Municipalities may find it difficult to determine in all cases precisely which revenue streams are “utility revenue” and which are excluded. If the municipality cannot determine the revenue stream of the given utility, it is recommended that this lost revenue be excluded from a municipality’s loss calculation for CSLFRF, as the revenue stream based on Treasury guidance is the principal means of determining revenue stream eligibility.

Importantly, in any instance where a municipality uses CSLFRF for a project or service, the municipality must adhere to all compliance and reporting guidance outlined by Treasury’s Compliance and Reporting Guidance for CSLFRF.[8] Municipalities should also contemporaneously document all guidance utilized in making the decision to calculate the decrease in budget, transfer from utilities to the general fund as lost revenue and provide “[a]n explanation of how revenue replacement funds were allocated to government services.”[9] Treasury indicates:

Financial records and supporting documents related to the award must be retained for a period of five years after all funds have been expended or returned to Treasury, whichever is later. This includes those which demonstrate the award funds were used for eligible purposes in accordance with the ARPA, Treasury’s regulations implementing those sections, and Treasury’s guidance on eligible uses of funds.[10]

Treasury guidance may change in the future; municipalities should always maintain documentation to demonstrate its decision making process in all decisions related to CSLFRF and other government programs.

Last Revised: June 30, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021) – FAQ #3.1 (emphasis added), available at:

[2] Id. (emphasis added).

[3] U.S. Bureau of the Census, Government Finance and Employment Classification Manual, October 2006, at 3-4, available at:

[4] U.S. Department of the Treasury, Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.15., available at:

[6] U.S. Bureau of the Census, Government Finance and Employment Classification Manual, October 2006, 4-45, available at:

[7] Id.

[8] Department of Treasury, Compliance and Reporting Guidance, State and Local Fiscal Recovery Funds (as of June 24, 2021), available at:

[9] Id., at 13.

[10] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #9.1, at 35, available at: