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Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations 4423
<br /> also apply to uses of funds,including the sources of funds that will offset— fund revenue,such as a change that
<br /> environmental and civil rights laws. i.e.,cover the cost of—any reduction in would increase a tax rate; and
<br /> To enhance clarity,this net tax revenue resulting from such O Spending cuts in areas not being
<br /> SUPPLEMENTARY INFORMATION for the changes. The interim final rule replaced by SLFRF funds.
<br /> final rule consolidates these restrictions recognizes three sources of funds that The recipient government will
<br /> on use of funds into one section and may offset a reduction in net tax calculate the value of revenue reduction
<br /> makes clear that they apply to all revenue other than SLFRF funds: remaining after applying these sources
<br /> eligible use categories and any use of Organic revenue growth,increases in of offsetting funding to the total value of
<br /> funds under the program by recipients revenue due to policy changes (e.g.,an revenue reducing changes—that is,how
<br /> to whom each specific restriction increase in a tax rate),and certain cuts much of the tax change has not been
<br /> applies. in spending. paid for. The recipient government will
<br /> This section discusses the Specifically,the interim final rule then compare that value to the
<br /> aforementioned restrictions,public establishes a step-by-step process for difference between the baseline and
<br /> comments received,and Treasury's determining whether,and the extent to actual tax revenue.A recipient
<br /> response to these comments.For clarity, which, SLFRF funds have been used to government will not be required to
<br /> Treasury has divided the following offset a reduction in net tax revenue, repay to Treasury an amount that is
<br /> discussion into (A) statutory restrictions based on information reported by the greater than the recipient government's
<br /> under the ARPA,which include (1) recipient government: actual tax revenue shortfall relative to
<br /> offsetting a reduction in net tax revenue, • First, each year,each recipient the baseline (i.e., fiscal year 2019 tax
<br /> and (2) deposits into pension funds,and government will identify and value the revenue adjusted for inflation). This
<br /> (B) other restrictions on use,which changes in law,regulation, or "revenue reduction cap,"together with
<br /> include (1) debt service and interpretation that would result in a Step 3, ensures that recipient
<br /> replenishing reserves, (2) settlements reduction in net tax revenue,as it would governments can use organic revenue
<br /> and judgments, and(3)general in the ordinary course of its budgeting growth to offset the cost of revenue
<br /> restrictions. process. The sum of these values in the reductions.
<br /> A.Ineligible Uses of Funds Under the year for which the government is << • Finally,if there are any amounts
<br /> reporting is the amount it needs to pay that could be subject to recoupment,
<br /> ARPA Statute for"with sources other than SLFRF Treasury will provide notice to the
<br /> 1. Offset a Reduction in Net Tax funds (total value of revenue reducing recipient government of such amounts
<br /> Revenue changes). along with an explanation of such
<br /> For states and territories (recipient • Second,the interim final rule amounts. This process is discussed in
<br /> governments 347), section 602(c)(2)(A)— recognizes that it may be difficult to greater detail in section Remediation
<br /> the offset provision—prohibits the use predict how a change would affect net and Recoupment of this Supplementary
<br /> of SLFRF funds to directly or indirectly tax revenue in future years and, Information.
<br /> offset a reduction in net tax revenue accordingly,provides that if the total Together,these steps allow Treasury
<br /> resulting from a change in law, value of the changes in the year for to identify the amount of reduction in
<br /> regulation,or administrative which the recipient government is net tax revenue that both is attributable
<br /> interpretation 348 during the covered reporting is below a de minimis level, to covered changes and has been
<br /> as discussed below,the recipient directly or indirectly offset with SLFRF
<br /> period. If a state or territory uses SLFRF
<br /> funds to offset a reduction in net tax government need not identify any funds.
<br /> sources of funding to pay for revenue Overview of Comments:Many
<br /> revenue resulting from a change in law, reducing changes and will not be commenters supported the framework
<br /> regulation,or interpretation,the ARPA g cap g
<br /> provides that the state or territory must subject to recoupment. established under the interim final rule.
<br /> repay to Treasury an amount equal to Third, a recipient government will These commenters argued that the offset
<br /> the lesser of(i)the amount of the consider the amount of actual tax provision, and the interim final rule s
<br /> applicable reduction attributable to the revenue recorded in the year for which implementation of the offset provision,
<br /> it is reporting. If thwas essential to ensuring SLFRF funds
<br /> government,impermissible offset and(ii)the amount e recipient
<br /> of SLFRF funds received by the state or s actual tax revenue is are used in a manner consistent with the
<br /> territory.A state or territory that uses greater than the amount of tax revenue statute's defined eligible uses and,in
<br /> SLFRF funds to offset a reduction in net received by the recipient for the fiscal particular,to support the use of SLFRF
<br /> tax revenue does not forfeit its entire year ending 2019, adjusted annually for funds to build public sector capacity.
<br /> allocation of SLFRF funds (unless it inflation,the recipient government will Several commenters argued that the
<br /> misused the full allocation to offset a not be considered to have violated the framework should be made more
<br /> reduction in net tax revenue) or any offset provision because there will not restrictive; for example, some comments
<br /> non-SLFRF funding. have been a reduction in net tax advocated that the offset provision be
<br /> The interim final rule implements revenue. applied to local governments.
<br /> these conditions by establishing a • Fourth, if the recipient Other commenters argued that the
<br /> framework for states and territories to government's actual tax revenue is less offset provision and the interim final
<br /> determine the cost of changes in law, than the amount of tax revenue received rule's implementation of the offset
<br /> regulation,or interpretation that reduce by the recipient government for the provision is too restrictive,with some
<br /> tax revenue and to identify and value fiscal year ending 2019,adjusted asserting that the offset provision
<br /> annually for inflation,in the reporting prohibits states from making changes to
<br /> 347In this sub-section,"recipient governments" year the recipient government will reduce taxes. Many of these commenters
<br /> refers only to states and territories.In other identify any sources of funds that have argued that the offset provision presents
<br /> sections,"recipient governments"refers more been used to permissibly offset the total constitutional concerns. These
<br /> broadly to eligible governments receiving funding value of covered tax changes other than commenters asserted that the offset
<br /> from the SLFRF.
<br /> 348 For brevity,this phrase is referred to as SLFRF funds.These are: provision is ambiguous and the
<br /> "changes in law,regulation,or interpretation"for O State or territory tax changes that restriction is unrelated to the purpose of
<br /> the remainder of this SUPPLEMENTARY INFORMATION. would increase any source of general the ARPA. These commenters also
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