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Using American Rescue Plan Funds for Revenue Loss

The American Rescue Plan Act provided funds for municipal governments nationwide to respond to COVID-19 disruptions, including premium pay for essential workers and economic recovery efforts. Cities and towns can also use their ARP allocations to offset revenue loss and pay for government services in an amount equal to what they lost as a result of the pandemic. Generally, ARP funds that are used to replace lost revenue can be used for infrastructure, public safety and other traditional governmental services.

Cities that choose to go this route with their ARP allocations are subject to reporting and compliance requirements issued by the U.S. Department of the Treasury
Here are suggestions for how to calculate a city’s revenue loss: 

Two choices for determining revenue loss
Cities can choose between one of two options for the calculation:
  • a “standard allowance” of $10 million, where the Department of Treasury assumes that as much as $10 million of revenue has been lost, even in cases where the ARP allocation is less than $10 million, or
  • by estimating the actual revenue lost, according to the Department of Treasury’s formula. This option allows a city or town to determine the exact amount of revenue that was lost as a result of the pandemic, and then use that amount for government services. 
Calculating revenue loss
The easiest option for claiming revenue loss in most cities and towns is the “standard allowance.” Since the majority of cities and towns in the state each received less than $10 million in ARP funds, the standard allowance frees a city from the more complicated task of calculating its actual revenue loss.

However, if a city or town chooses to estimate its actual revenue loss, then the Department of the Treasury’s Final Rule specifies the formula for doing so. The Final Rule employs a mathematical formula for determining “counterfactual” revenue, which is the revenue that would have been received if the pandemic had not occurred. By comparing counterfactual revenue with the revenue actually received, cities can then report the exact amount of revenue lost because of the pandemic. 

The best way to handle the mathematical formula is to use the Revenue Loss Calculator created by the Government Finance Officers Association. The calculator is a Microsoft Excel document available on the Municipal Association of SC’s website, www.masc.sc (keyword: ARP). The website’s resources also include the Final Rule and other ARP guidance.

To get ready to use the calculator, a city should first determine the “base year revenue amount,” which is revenue as it stood prior to COVID-19 disruptions. This will be the revenue collected during the last fiscal year that ended before January 27, 2020. 

Users will also need to know the rate of revenue growth during the three fiscal years ending before this date. This will help determine what the rate of growth would have been in the counterfactual revenue. 

Cities can use the calculator to estimate counterfactual revenue, using the base year revenue and a growth multiplier. The difference between counterfactual revenue and actual revenue is the city’s revenue loss. 

For questions on American Rescue Plan issues, contact Legislative and Public Policy Advocate Erica Wright at ewright@masc.sc or 803.354.4793.