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Revenue loss calculation for tribes, plus cash assistance, under the American Rescue Plan

Jun 09, 2021

The Coronavirus Relief Fund, which included the $8 billion set aside for tribal governments in the CARES Act, had strict guidance that prohibited replacing governmental revenues. This left many tribal governments in precarious positions: sudden surplus of funding to respond to the pandemic, but running the coffers dry on maintaining basic governmental services.

Tribes with furloughed human resource professionals, enrollment specialists and casino floor managers simultaneously had workforces of temporary labor distributing food or setting up road barricades around reservations.

These temporary positions sometimes offered more compensation than the permanent positions due to hazard premiums, competition from inflated unemployment benefits or both.

How the American Rescue Plan differs

On May 17, the Treasury issued the interim final rule for the Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund. 

While the Coronavirus Relief Fund of 2020 forbid revenue replacement, the interim final rule for the fiscal recovery funds takes the opposite stance. Tribal governments are allowed to use the money for the “provision of government services to the extent of the reduction in revenue experienced due to the COVID-19 public health emergency.”

Like many other programs, such as the Paycheck Protection Program (PPP), the reduction in revenue is calculated in relation to the previous full fiscal year prior to the health emergency.

Do all revenues count?

The interim final rule creates a new term called “general revenue.” This roughly equates to the general revenues shown on a government’s statement of activities, with some exceptions.

An important note was included for tribal governments, which generally rely heavily on their enterprises for significant portions of their overall funding:

“The definition of general revenue would include all revenue from Tribal enterprises, as this revenue is generated from economic activity and is available to fund government services.”

This is excellent news since tribes are not able to generate revenue through taxes in the same manner as state and local governments.

Is there a provision for revenue growth?

The Treasury not only is providing for lost revenue as compared to the previous fiscal year but also including a provision for a growth rate adjustment factor. Governments may use the larger of 4.1% or their own actual growth rate over the previous three-year period. This common-sense provision is immensely important in the current inflationary environment.

What do tribes need to do now?

While this is still technically an “interim” final rule, tribes can prepare by beginning to gather and calculate what their revenue replacement might look like.

Tribes will need to calculate the extent of revenue reduction as of four points in time: December 31, 2020; December 31, 2021; December 31, 2022; and December 31, 2023. For this, the Treasury lays out 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 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 4.1% and the recipient’s average annual revenue growth in the three full fiscal years prior to the COVID-19 public health emergency.

Step 3: Identify actual revenue, which equals revenues collected over the past 12 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.

What can the revenue loss funding be spent on?

While the intention of Congress is to provide broad latitude to local decision makers, the Treasury lists the following specific examples:

  • Maintenance or pay-go funded building of infrastructure, including roads
  • Modernization of cybersecurity, including hardware, software and protection of critical infrastructure
  • Health services and environmental remediation
  • School or educational services
  • The provision of police, fire and other public safety services

However, government services specifically excludes principal and interest payments on outstanding debt, as well as the payment of settlement agreements and judgements. Setting aside cash for reserves or replenishing “rainy day” funds are specifically not allowed uses of fiscal recovery funds, as these do not directly relate to the provision of current government services.

The period of expenditure goes back to March 3, 2021, and extends to December 31, 2026. Tribal governments should be devising strategies that maximize the impact of various programs while taking into account their overlapping timelines. The Coronavirus Relief Fund, for example, was extended through December 31, 2021.

Items that need to be addressed

Just shy of one-quarter of the way through the interim final rule, the Treasury discusses assistance to households as an eligible use. The pandemic has caused economic disruption to individuals and their families, which governments should be equipped to address.

The Treasury goes on to address cash assistance:

“[A] cash transfer program may focus on unemployed workers or low- and moderate-income families, which have faced disproportionate economic harms due to the pandemic. Cash transfers must be reasonably proportional to the negative economic impact they are intended to address.”

This section is not meaningfully different than previous Coronavirus Relief Fund guidance. That requirement relied upon “necessary” expenditures to respond to the pandemic but left specific interpretations up to local officials.

Then Treasury goes further:

“Cash transfers grossly in excess of the amount needed to address the negative economic impact identified by the recipient would not be considered to be a response to the COVID-19 public health emergency or its negative impacts. In particular, when considering the appropriate size of permissible cash transfers made in response to the COVID-19 public health emergency, State, local and Tribal governments may consider and take guidance from the per person amounts previously provided by the Federal Government in response to the COVID-19 crisis. Cash transfers that are grossly in excess of such amounts would be outside the scope of eligible uses under sections 602(c)(1)(A) and 603(c)(1)(A) and could be subject to recoupment.”

Potential impacts

Tribes across the country have distributed cash assistance in one form another. Some have made such distributions under existing general welfare programs. The dollar amount per member has also varied widely.

Early cash assistance tended to take on a form like that of the federal stimulus program: one flat amount for all eligible members.

As the Coronavirus Relief Fund guidance evolved and required an assessment of need, tribes adapted by documenting each member’s need to receive future payments.

While there is no data on the amount of cash assistance distributed per tribe, and certainly per tribal member, it no doubt could have been in amounts exceeding those of the federal programs.

Will the Treasury use a similar standard looking backwards at Coronavirus Relief Fund expenditures? Only time will tell.

Wipfli can help

If you need assistance determining where and how to invest your tribe’s American Rescue Plan Act fiscal recovery funds, or help with revenue loss calculation, contact Wipfli. Our tribal practice professionals can help you meet the demands of today and strategize for the future — leveraging your ARPA funds to the fullest.

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Closing the digital divide: A once-in-a-generation opportunity for tribes
American Rescue Plan Act provides billions in relief to state and local governments
How governments can spend Coronavirus State and Local Fiscal Recovery Funds 

Author(s)

Nik K. Wong, CPA, CFE
Senior Manager
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