The American Rescue Plan Act: Calculating Revenue Loss


The American Rescue Plan Act (ARPA), in many ways, is a structural financial change for state and local governments. $350 billion is being apportioned to every general-purpose government jurisdiction in the country as part of the Coronavirus State and Local Fiscal Recovery Funds (FRF). These billions are on top of added billions made available in the four earlier federal acts focused on mitigating the impact of the pandemic over the past year.

What can a government use the funds for? Eligible uses of Fiscal Recovery Funds include:

  • Responding to the public health emergency and its negative economic impacts
  • Premium pay for employees that supply essential work during the pandemic
  • Specific uses for water, sewer and broadband

The potential uses for the first three major inclusions are broadly-based. However, the loss of revenue calculation can be tricky, and may not result in the “free money” entities are hoping to receive. The remainder of this article focuses on the methods and considerations in calculating the losses.

What Revenue is Included in the Calculation?

The calculation is based on general revenue, primarily on the United States Census Bureau’s concept of “general revenue from own sources” in the Annual Survey of State and Local Government Finances. Like GASB Statement No. 84’s definition of own source revenues, it is easier to define what is not included in general revenue than what is included.

Excluded items include:

  • Refunds and error corrections
  • Proceeds from debt issuance and the sale of investments
  • Agency or private trust transactions
  • Utility revenue and insurance trust revenue

In addition, the biggest exclusion may be federal grant revenue that is either directly received or passed through another entity. However, other intergovernmental revenues are included in general revenue.

How Is the Loss Calculated?

The loss is calculated using entity-wide revenues starting with the most recent full fiscal year prior to the COVID-19 public health emergency. For June 30 governments, that may be the fiscal year ended June 30, 2019. This is termed the base year. Two added full fiscal years prior to the COVID-19 public health emergency are then used to show a growth trend. In this case, that would be the fiscal years ended June 30, 2017, and June 30, 2018, in addition to the June 30, 2019, year-end.

If audited data is not available, recipients do not have to use audited data. Furthermore, the data does not have to be on an accrual basis of accounting. The cash or modified accrual basis of accounting may be used if the basis is consistent.

The base year revenue and the growth from the prior years is trended by using the following formula: (1+growth adjustment)^(n/12) where n is number of months since end of base year

The calculated growth is then compared to a floor of 4.1%, or an allowable growth from year to year in ARPA.

Actual General Revenue is measured at four points in time, the first being the calendar year ended December 31, 2020. Notice that the dates do not match those governments with fiscal years. Then, the process is repeated each December 31 until 2023.

If Actual General Revenue is less than the Base Year Revenue adjusted by the Growth Adjustment (or counterfactual revenue), then a revenue loss is calculated.

My Government Has a Revenue Loss: What Now?

First, check your math! If there is a loss, then U.S. Treasury FAQ 3.8 supplies a broad usage of funds just to the extent of the loss of revenue. Funds currently may be used for government services such as:

  • 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
  • The provision of police, fire and other public safety services

Governments cannot use the funds for debt service, replenish rainy day funds or similar reserves, make pension deposits or pay settlements and judgments.

Eide Bailly can help your government work through the ARPA revenue loss calculation process.

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