Should a state’s failure to provide “Payment in Lieu of Taxes” funds at the full formula level be included in a municipality’s revenue loss calculation?

To the extent that the reduction in revenue occurred due to the COVID-19 public health emergency, recipients may use payments from the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) for the provision of government services. Pursuant to the American Rescue Plan Act of 2021 (“ARP”), a recipient’s reduction in revenue is measured relative to the revenue collected in the most recent full fiscal year prior to the emergency.[1]

Treasury defines “general revenue” for the purposes of this provision in the CSLFRF Frequently Asked Questions (“FAQs”) as:

based on, but not identical, to the Census Bureau’s concept of “General Revenue from Own Sources” in the Annual Survey of State and Local Government Finances.

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]

The Final Rule clarified the definition of general revenue to allow recipients that operate utilities that are part of their own government to choose whether to include revenue from these utilities in their revenue loss calculations.[3] The Final Rule also added liquor store revenue to the definition of general revenue.[4]

The Final Rule confirmed Treasury’s guidance in terms of intergovernmental transfers. Assuming that “Payment in Lieu of Taxes” by the state qualifies as an “intergovernmental transfer between state and local governments,” the failure of the state to provide a “Payment in Lieu of Taxes” at the full formula level could potentially qualify as “general revenue.” If that were indeed the case, a municipality could likely offset “Payment in Lieu of Taxes” with CSLFRF under the lost revenue provision.   

Last Updated: March 31, 2022