Agenda - Council Work Session - 03/08/2022

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4406 Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations Presumption of Revenue Loss "Due To" particular, at this point in the course of recipients already prepare estimates of the Pandemic the pandemic,with the fiscal pressure the impact of tax changes on revenue, In enacting sections 602(c)(1)(C)and on state and local governments having and as discussed below,Treasury will 603(c)(1)(C) of the Social Security Act, been significantly reduced, it is generally permit recipients to rely on Congress provided that a state,local appropriate for Treasury to reassess such estimates in adjusting their government, or Tribal government could aspects of this presumption. As revenue loss calculations. use funds to"cover costs . . . for the discussed below,the final rule requires Reductions in revenue that are not provision of government services,"but recipients to exclude the value of tax attributable to tax changes would only"to the extent of the reduction in policy changes adopted after January 6, continue to be subject to the revenue . . . due to the COVID-19 2022. presumption.A requirement that public health emergency relative to Recipients of the SURF range from recipients evaluate the revenue effect of revenues collected in the most recent states to the smallest local governments. changes in discretionary policy actions full fiscal year. . . prior to the At the time that the interim final rule other than tax changes would be more emergency."In doing so,Congress was adopted,it was important for difficult for recipients than evaluating recognized that the pandemic was recipients to be able to calculate with the changes attributable to tax changes causing significant disruption to ease and certainty their amount of given that state and local governments economic activity and sought to revenue loss so that they could begin do not generally prepare estimates of the minimize the impact of associated deploying these funds to continue to revenue effects of other actions.Finally, revenue losses on the ability of the maintain essential government services. as noted above,taxes are the single recipient to provide government To this end,the presumption in the largest source of revenue for state and services when such services were interim final rule provided a relatively local government recipients in the needed most.294 The text of the statute simple formula for all recipients to use, aggregate. itself reinforces this important context: but the exigent need for recipients to Revisions to Presumption To Address The law specifically limits funds to immediately deploy funds for the Tax Reductions cover revenue losses that both are"due provision of government services has to the COVID-19 public health decreased and the benefit of the For these reasons,Treasury is presumption in reducing administrative providing in the final rule that changes emergency" and could impact"the provision of government services." burden is less relevant for those in general revenue that are caused by governments that are not likely to avail tax cuts adopted after the date of Courts have recognized that the themselves of the standard allowance adoption of the final rule (January 6, phrase"due to" can refer to various described above. 2022)will not be treated as due to the causal standards.295 Here,in the context Consistent with these considerations, public health emergency, and the of Congress's addressing economic the final rule requires recipients to estimated fiscal impact of such tax cuts disruptions caused by the COVID-19 exclude revenue loss due to tax changes must be added to the calculation of pandemic that could impact both adopted after January 6, 2022. "actual revenue"for purposes of revenues and government services,the Eliminating revenue loss due to tax calculation dates that occur on or after key consideration is whether a revenue changes from the presumption is April 1, 2022. Tax cuts include final loss experienced by the recipient appropriate given the significance of tax legislative or regulatory action or a new resulted from the exogenous impacts of revenue as a portion of all revenue for or changed administrative interpretation the public health emergency(and were state and local governments,the direct that reduces any tax(by providing for a thus due to the pandemic) or instead impact of tax policy decisions on reduction in a rate, a rebate, a from the recipient's own discretionary revenue collected,and the relative ease deduction,a credit, or otherwise) or actions (and,in this context,were not with which recipients can isolate the delays the imposition of any tax or tax "due to"the pandemic).Reductions in estimated effect of a tax change on increase and that the recipient assesses revenue due to the public health revenue.296 Most state budgeting has had the effect of reducing tax emergency does not cover revenue processes require a"budget score," revenue relative to current law. This reductions that resulted from a often developed through a consensus includes the phase-in or taking effect of recipient's own discretionary actions. process with executive and legislative any statute or rule if the phase-in or In the interim final rule,Treasury branch experts,297 and Treasury expects taking effect was not prescribed prior to included a presumption that all revenue that larger localities,those most likely to the issuance of the final rule. loss is due to the pandemic in order to utilize the revenue loss formula rather In assessing whether a tax change has minimize the administrative burden on than the standard allowance,also had the effect of reducing tax revenue, recipients discussed above and take into regularly use revenue or budget recipients may either calculate the consideration the devastating effects of estimates when considering changes to actual effect on revenue or rely on the COVID-19 public health emergency. tax policies.As such,in many cases, estimates prepared at the time the tax Based on comments,Treasury believes change was adopted.More specifically, that the reasons for the presumption 296 Treasury considered whether to also eliminate recipients may rely on information continue to be valid and has determined the presumption with respect to losses resulting typically prepared in the course of to maintain the resum tion in the final from other changes in policy,such as decreases in p p user fees or fines.However,the effects of these developing the budget(e.g.,expected rule with certain modifications. In revenues) and/or considering tax changes are more minor overall and would be more challenging to accurately identify and quantify,so changes (e.g.,budget scores,revenue 294 See also sections 602(a)(1)and 603(a)of the the administrability benefit of the presumption for notes)to determine the amount of Social Security Act(appropriating the funds for recipients outweighs whatever distortion there revenue that would have been collected payment to recipients in order to"mitigate the might be as a result of not reflecting such changes. fiscal effects stemming from the public health 297 See generally,National Association of State in the absence of the tax cut, as long as emergency"). Budget Officers,Budget Processes in the States, those estimates are based on reasonable 295 U.S.Postal Service v.Postal Regulatory (2021),available at https://higherlogicdownload. assumptions and do not use dynamic Comm'n,640 F.3d 1263(D.C.Cir.2011);see Kimber s3.amazonaws.com/NASBO/9d2d2dbi-c943-4fib- methodologies that incorporate the v.Thiokol Corp.,196 F.3d 1092,1100(10th Cir. b750-Ofca152d64c2/Uploadedlmages/Budget%20 1999);Adams v.Director,OWCP,886 F.2d 818,821 Processess/NASBO_2021_Budget Processes_in the projected effects Of macroeconomic (6th Cir.1989). States_S.pdf growth,given that macroeconomic