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Lost Revenue & Revenue Replacement

When determining what constitutes the “negative economic impacts” of COVID-19, should municipalities look to FY2020 or prior fiscal years for comparison?

On April 14, 2021, the U.S. Department of the Treasury announced the creation of the Office of Recovery Programs.[1] This new office will be led by a Chief Recovery Officer and is intended to lead the Treasury’s administration of components of the American Rescue Plan Act (“ARP”) of 2021, including the Coronavirus Local Fiscal Recovery Fund (“CLFRF”).[2] On May 10, 2021, this new office issued the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule (the “Rule”).[3]

The exact definition under the ARP of “negative economic impacts” of COVID-19 remains very broad.  As with guidance previously released for the Coronavirus Relief Fund (“CRF”), broad discretion remains in terms of determining a nexus between economic impacts and COVID (thus triggering programmatic allowability). A non-exhaustive list of eligible uses is available in the Rule.[4]

In analyzing certain losses, Section 603(c)(1)(C) introduces the concept of fiscal year comparison as: 

for the provision of government services to the extent of the reduction in revenue of such metropolitan city, non-entitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, non-entitlement unit of local government, or county prior to the emergency[.][5]

Under Section 603(c)(1)(C) of the Social Security Act, as amended by Section 9901 of the ARP, an allowable use of funds is specific to the provision of government services and revenue loss. Other types of beneficiaries, such as households or small businesses, are identified in Section 603(c)(1)(A) and would not necessarily follow a formal fiscal year; strict comparisons between fiscal years therefore should not apply. When allocating funding, municipalities should consider a formal, documented, and consistent process to determine negative economic impacts related to COVID-19. The Rule specifically refers to four categories of negative economic impacts, including:

  • impacts on households and individuals;
  • impacts on businesses;
  • impacts to state, local, and tribal governments; and
  • exacerbation of pre-existing disparities.[6]

The Rule also provides guidance as to the growth rate that can be presumed in the counterfactual trend when calculating revenue loss for replacement purposes. The recipient can either use the recipient’s average annual growth rate over the past three full fiscal years prior to the COVID-19 pandemic, or 4.1% per year across all State and local government “General Revenue from Own Sources,” as defined by the U.S. Census Bureau – whichever is greater.[7]

Last Revised: May 24, 2021

 

[1] U.S. Department of the Treasury, Press Releases, Treasury Establishes New Office to Lead Implementation of Relief and Recovery Programs, https://home.treasury.gov/news/press-releases/jy0121.

[2] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., Section 603, https://www.congress.gov/bill/117th-congress/house-bill/1319/text#H7C2075B5C62541F9A348BDF1DDBECEB6.

[4] Id. at 138.

[5] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., Section 603, https://www.congress.gov/bill/117th-congress/house-bill/1319/text#H7C2075B5C62541F9A348BDF1DDBECEB6.

[6] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule, 31 CFR Part 35 RIN 1505-AC77, at 23, https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[7] Id. at 57-60; see also U.S. Census Bureau, Annual Survey of State and Local Government Finances, https://www.census.gov/programs-surveys/gov-finances.html.