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COVID-19 Federal Assistance e311

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Lost Revenue & Revenue Replacement

When excluding certain revenues for revenue loss calculations, must a municipality also exclude those same revenues from its base year?

Yes. When excluding certain revenues for the revenue loss calculation under the American Rescue Plan Act of 2021’s (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”), a municipality must exclude those same revenues from the base year.

The U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule adopts the definition of “General Revenue”[1] which was based largely on the concept of “General Revenue from Own Sources.”[2] This is the case as explained in the Census Bureau’s Government Finance and Employment Classification manual, with limited exceptions including the treatment of certain intergovernmental transfers and liquor store revenues.[3] This definition ensures consistency when assessing which revenues to include and exclude in calculating revenue loss both in the base year and in future years. In a recent update to its CSLFRF Frequently Asked Questions (“FAQs”) for the Final Rule, Treasury included an Appendix that municipalities can review to assist in their determination of which of their respective revenue streams may qualify as General Revenue.[4]

The Final Rule establishes the following process for calculating revenue:

Recipients should calculate the extent of the reduction in revenue as of 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 the amount of revenue the recipient would have expected in the absence of the downturn caused by the pandemic. The counterfactual revenue 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 the average annual growth rate across all State and Local Government “General Revenue from Own Sources” in the most recent three years prior to the emergency, 5.2 percent, or the recipient’s average annual revenue growth in the three full fiscal years prior to the COVID-19 public health. emergency. This approach to the growth rate provides recipients with the option to use a standardized growth adjustment when calculating the counterfactual revenue trend and thus minimizes administrative burden, while not disadvantaging recipients with revenue growth that exceeded the national average prior to the COVID-19 public health emergency by permitting these recipients to use their own revenue growth rate over the preceding three years.

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.[5]

Treasury may provide additional information when it issues new FAQs associated with the Final Rule.

Last Updated: March 31, 2022

[1] Treas. Reg. 31 CFR 35 at 408, available at: https://home.treasury.gov/system/files/136/SLFRF-Final-Rule.pdf.

[2] Id., at 243.

[3] U.S. Bureau of the Census, Government Finance and Employment Classification Manual, October 2006, at 3-4, available at: https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of January 2022), at 43, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Treas. Reg. 31 CFR 35 at 236-237, available at: https://home.treasury.gov/system/files/136/SLFRF-Final-Rule.pdf.