American Rescue Plan Act: Final Rule for Reporting Lost Revenue and its Impact on Governments


By Laura Nelson, CPA

The Secretary of the Treasury (Treasury) adopted the final rule related to the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) established under the American Rescue Plan Act (ARPA) on April 1, 2022. The CSLFRF program has disbursed over $240 billion to state, local and tribal governments to provide resources needed to respond to the COVID-19 pandemic.

One of the biggest changes governments need to be aware of from the final rule is the calculation of lost revenue.

Calculation of Lost Revenue under the Coronavirus State and Local Fiscal Recovery Funds program

The initial provisions from ARPA provided a complex calculation of lost revenue due to the COVID-19 pandemic using revenue in the last full fiscal year prior to the public health emergency. Any granted funds related to lost revenue could then have been used for forward-looking costs incurred after March 3, 2021 to ease fiscal pressure for the recipients. Many state and local governments found that calculating revenue loss was difficult to apply using the initial calculation.

The Treasury’s final rule provides major relief for recipients. Grantees may elect a fixed amount using a standard allowance of lost revenue of $10 million or the level of their ARPA grant, whichever is less. This allows for a simpler option for governments, with the understanding that once the allowance is claimed, no further projects may be funded from the same allowance.

What if Your Government Chooses Not to Use the Standard Allowance?

If a government chooses not to use the $10 million standard allowance, then the four-step calculation described in the interim final rule would need to be used.

Step Process
1 Calculate base year revenue using the general revenues from the most recent full fiscal year prior to the COVID-19 pandemic.
2 Estimate expected revenue the recipient would have received if the pandemic were not to occur, called the counterfactual revenue. This calculation is following formula: Base year revenue from step one multiplied by (1+growth adjustment)^(n/12) where n is number of months since end of base year. The growth adjustment is the greater of an average annual growth rate, 5.2%, or the recipient’s calculated average annual revenue growth in the three full fiscal years prior to the COVID-19 pandemic.
3 Calculate actual revenue for the twelve months preceding the calculation date.
4 The recipient’s lost revenue equals counterfactual revenue less actual revenue.

One important change to note regarding the calculation in the final rule is recipients can now choose whether to use calendar or fiscal year dates. The recipient does need to be consistent with the cycle used in the calculation for each reporting through the period of performance. This is also a major relief.

General Revenue Defined

Another key change to lost revenue is in the definition of general revenue. The updated definition of general revenue to be used in the calculation now encompasses:

  • Intergovernmental revenue from state and local governments
  • General revenue from current charges including airports, highway or tolls, public housing, etc.
  • Tax revenue
  • Miscellaneous revenue including dividends, donations from private sources, fines, rents, sale of property and special assessments

Guidance Available

How to calculate lost revenue is just one of the many changes in the final rule. Our government advisory team remains informed on all updates from the CSLFRF that is released by the Treasury, in addition to the new guidance that is published regularly. Staying up-to-date on these updates is critical to calculating lost revenue and compliance. Be sure to lean on a trusted advisor to help you understand the new updates and regulation changes.

With the ongoing changes to ARPA, calculating lost revenue for your government entity can be complex. Our Eide Bailly government professionals can guide you through the process.

This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.

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