Under the Coronavirus State and Local Fiscal Recovery Funds Program (SLFRF), the first subcategory under which to apply for aid is “Replacing Lost Public Sector Revenue.” Local governments may apply for a grant equal to the amount of funds that they lost from the federal government due to the far-reaching impacts of COVID-19. Then, a local government can use these funds for any service traditionally performed by the government, from construction of schools and hospitals to environmental remediation. The Department of the Treasury provides a set of guidelines through which to determine a local government’s revenue loss under the guidelines of SLFRF. This article simplifies the process so that your government can apply for SLFRF grants under this subcategory.
The first of the two options to determine revenue loss is referred to as the “standard allowance” per the Final Rule of the SLFRF. Rather than spending long hours calculating exact revenue loss, this choice allows governments to choose one lump-sum payment of $10 million, no matter their size or loss (this option functions very similarly to a standard deduction when filing taxes). For governments that do not have the capacity to undertake calculating their actual revenue loss per the guidelines below, this is a wonderful option. Likewise, for smaller governments, the option of $10 million is advantageous as it might provide more funds than originally lost from public sector revenue due to COVID-19.
The second option is to calculate the actual revenue loss that your government experienced, using the formula provided in the Final Rule. Per the provided guidelines, revenue loss will be calculated across four points in time: in 2020, 2021, 2022, and 2023. The actual date at which revenue loss is calculated can be December 31 of each year or the beginning of each respective fiscal year—the choice is up to the government calculating. Once the dates for calculation are selected, there is a four-step process to calculate actual revenue loss.
- Calculate revenues collected in the most recent full fiscal year before the pandemic began (effectively, the full fiscal year before January 27, 2020) – referred to as the “base year revenue”
- Estimate “counterfactual revenue” with the following formula
Base year revenue x ( 1 + growth adjustment)𝑛12
- Growth adjustment = the standard growth rate (5.2%) or recipient’s average annual revenue growth in the last full three fiscal years prior to the onset of pandemic
- n = the number of months elapsed since the end of the base year to the calculation date
- Identify “actual revenue,” or the revenue actually collected, over the twelve months preceding the calculation date
- This must be adjusted for the adoption of any tax cuts or increases after the enactment of the Final Rule (January 6, 2022) — whether it be addition or subtraction to the calculation of actual revenue for any date that starts on or is after April 1, 2022
- Calculate revenue loss, which is equal to (counterfactual revenue – actual revenue [adjusted for tax changes]) over the 12-month period
- If actual revenue exceeds counterfactual revenue – the loss is set to 0
- Revenue loss for the period of performance = sum of the revenue loss for each calculation date
Calculating actual revenue loss when looking into attaining SLFRF funding would be advantageous for governments whose actual revenue loss exceeds $10 million (the standard allowance), meaning that they would be eligible for an award of a greater sum.