Agenda - Council Work Session - 03/08/2022

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Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations 4401 outlook for most jurisdictions as pandemic caused state and local emergency, 5.2 percent, or the compared to the earlier months of the government employment to contract recipient's average annual revenue public health emergency. For the fiscal again,but this time more sharply:By growth in the three full fiscal years prior year ending June 30, 2021,total state May 2020, state and local government to the COVID-19 public health and local government tax revenues payrolls fell 7.7 percent compared to emergency.282 This approach to the increased 21 percent relative to the February 2020.Despite improvement, growth rate provides recipients with the same period in 2020,reflecting the non-federal public sector job growth option to use a standardized growth combined impact of the modified tax continues to lag behind the rest of the adjustment when calculating the filing deadline in 2020 and an U.S. labor market recovery.281 counterfactual revenue trend and thus improving economy.275 However, Summary of Interim Final Rule minimizes administrative burden,while despite a stable budget situation overall, not disadvantaging recipients with many governments face uncertainty as As stated above,the Social Security revenue growth that exceeded the the COVID-19 pandemic continues to Act provides that SLFRF funds may be national average prior to the COVID-19 impact commuting patterns,hospitality used for the provision of government public health emergency by permitting and tourism, and other drivers of services to the extent of the reduction in these recipients to use their own jurisdictions' economies. Thirty-five revenue of such. . .government due to revenue growth rate over the preceding percent of cities still report being less the COVID-19 public health emergency three years. able to meet financial needs than in relative to revenues collected in the . Step 3:Identify actual revenue,283 fiscal year 2020,276 and over half of most recent full fiscal year of the . . . government prior to the emergency." which equals revenues collected over surveyed Tribal governments and Tribal The interim final rule provided a the twelve months immediately enterprises reported losing at least 40 formula for calculatingrevenue loss preceding the calculation date. percent of their revenue since the start • Step 4:The extent of the reduction an 77 Budet challenges of the demic.2 through afour-step process: p g g • Step 1:Identify revenues collected in revenue is equal to counterfactual persist as governments work to mitigate in the most recent full fiscal year prior revenue less actual revenue. If actual and contain COVID-19 and help revenue exceeds counter actual revenue, citizens weather the economic to the public health emergency(i.e., last f full fiscal year before January 27, 2020), the extent of the reduction in revenue is downturn. called the base year revenue. set to zero for that calculation date. State,local,and Tribal government • Step 2:Estimate counterfactual For illustration, consider a budgets affect the broader economic revenue,which is the amount of hypothetical recipient with base year recovery. During the period following revenue the recipient would have revenue equal to 100 (Step 1)that ends the 2007-2009 recession, state and local expected in the absence of the downturn on June 30, 2019.In Step 2,the government budget pressures led to caused by the pandemic. The hypothetical recipient finds that the fiscal austerity that was a significant counterfactual revenue is equal to base average annual growth across all state drag on the overall economic year revenue * [(1 +growth adjustment) and local government"General Revenue recovery.278 Inflation-adjusted state and A (n/12)],where n is the number of from Own Sources"in the most recent local government revenue did not return months elapsed since the end of the three years of available data, 5.2 to the previous peak until 2013,279 base year to the calculation date,and percent,is greater than the recipient's while employment in the sector growth adjustment is the greater of the average annual revenue growth in the returned to the previous peak in August average annual growth rate across all three full fiscal years prior to the public 2019,nearly a decade later.280 Just State and Local Government"General health emergency.In this illustration,n months after recouping losses from the Revenue from Own Sources"in the (months elapsed) and counterfactual previous downturn,the COVID-19 most recent three years prior to the revenue would be equal to: As of: 12/31/2020 12/31/2021 12/31/2022 12/31/2023 n(months elapsed) .......................................................................................... 18 30 42 54 Counterfactual revenue: .................................................................................. 107.9 113.5 119.4 125.6 275 Analysis of Quarterly Summary of State and and-local-sector.html;Jiri Jonas,Great Recession 281 Pew Research,State and Local Government Local Tax Revenue,U.S.Census Bureau,supra note and Fiscal Squeeze at U.S.Subnational Government Job Growth Lags as Economy Recovers(September 271. Level,IMF Working Paper 12/184,(July 2012), 2021),available at https://www.pewtrusts.org/en/ 276 National League of Cities,City Fiscal available at https://www.imf.org/external/pubs/ft/ research-an d-analysis/articles/2021/09/14/state- Conditions(2021),available at https://www.nic.orgl wp/2012/wp12184.pdf;Gordon,supra note 16. and-local-government job-growth-lags-as-economy- wp-content/uploads/2021/1012021-City-Fiscal- 279 State and local government general revenue recovers. ort-2021.Conditions-Re d. from own sources,adjusted for inflation using the 282 p p f Bureau of Economic Analysis'implicit rice At the time the interim final rule was 277 Center for Indian Country Development and deflator for GDP.U.S.Census sus Bureau,Annual published,the average annual growth across all Federal Reserve Bank of Minneapolis,One Year state and local government"General Revenue from Into COVID-19,Pandemic's Negative Effects Persist Survey of State Government Finances and U.S. Own Sources"in the most recent three years of Bureau of Economic Analysis,National Income and o in Indian Country(May 2021),available at https:// product Accounts,https://www.census.gov/ available data(2015-2018)was 4.1/o,which was www.minneapolisfed.org/article/2021/one-year- programs-surveys,https://www.census.govl s://wn an w.cens presented as one option for the growth adjustment. into-covid-19-pandemics-negative-effects-persist-in- 280 U.S.Bureau of Labor Statistics,All Employees, Since the interim final rule was published,2019 indian-country. State Government[CES9092000001]and All data has been made available,which increases this 271I See,e.g.,Nora Fitzpatrick et al.,Fiscal Drag Employees,Local Government[CES9093000001], rate to 5.2%.The final rule updates the percentage from the State and Local Sector?,Liberty Street retrieved from FRED,Federal Reserve Bank of St. to 5.2%,as shown in Step 2. Economics Blog,Federal Reserve Bank of New York Louis,https://fred.stlouisfed.org/series/ 283 As explained below,in the final rule, (June 27,2012),https://libertystreeteconomics. CES9092000001 and https://fred.stlouisfed.orgl recipients must adjust actual revenue amounts newyorkfed.org/2Ol2/O6/f"iscal-drag-from-the-state- series/CES9093000001. based on certain tax policy changes.