Agenda - Council Work Session - 03/08/2022

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4426 Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations change and maintaining a consistent pandemic baseline is a reasonable projected effects of macroeconomic definition of"tax revenue."357 comparator for future revenue levels growth because macroeconomic growth Baseline.For purposes of measuring a and provides recipients with flexibility is accounted for separately in the reduction in net tax revenue,the interim to identify organic growth as a framework. final rule measures actual changes in tax permissible offset. Finally,this baseline Estimation revenue relative to a revenue baseline year is consistent with the approach (baseline). The baseline is calculated as directed by sections 602(c)(1)(C) and Public Comment:A number of fiscal year 2019 (FY 2019)tax revenue 603(c)(1)(C),which identify the "most commenters expressed concern that indexed for inflation in each year of the recent full fiscal year of the [state, estimating the value of covered changes covered period,with inflation territory, or Tribal government] prior to required a number of assumptions and calculated using the Bureau of the emergency"as the comparator for that the actual effects of covered Economic Analysis's Implicit Price measuring revenue loss. For these changes on tax revenue would be Deflator.358 reasons,Treasury is finalizing the difficult to predict. Several commenters Public Comment:Some commenters definition of"baseline"without change. expressed support for the interim final expressed concern regarding the choice The interim final rule includes several rule's approach to dynamic scoring Of FY 2019 as the baseline, arguing that other definitions that are applicable to methodologies, and one commenter the choice lacked justification and the implementation of the offset argued that the final rule should would make the offset provision more provision, such as the term"reporting prohibit the use of prior cash balances restrictive as applied to recipient year."360 Commenters did not express in calculations of permissible tax cuts. governments that experienced a decline concern regarding other definitions in Treasury Response:Treasury in revenue independent of making any the interim final rule. recognizes that estimating the effects of covered changes. covered changes requires assumptions g 2. Framework and that man other factors influence Treasury Response:Measuring a y "reduction"in net tax revenue requires The interim final rule provides a step- the amount of tax revenue received. The identification of a baseline.In other by-step framework,to be used in each interim final rule addresses these words,a"reduction" can be assessed reporting year,to determine whether a concerns in several ways.First,in only by comparing two amounts. The state or territory used SLFRF funds to general and where possible,reporting Act defines "covered period"to begin offset a reduction in net tax revenue. should be produced by the agency of the on March 3, 2021, and thus the baseline Consistent with section 602(c)(2) and recipient government responsible for year must end prior to March 3, 2021. the interim final rule,the final rule estimating the costs and effects of fiscal As discussed in the interim final rule, applies to states and territories: policy changes. This approach offers FY 2019 is the last full fiscal year prior (1) Covered changes that reduce tax recipient governments the flexibility to to the COVID-19 public health revenue.Under the interim final rule, a determine their reporting methodology emergency,and thus is consistent with recipient government identifies and based on their existing budget scoring the statutory definition and does not values covered changes that the practices and capabilities. In addition, include the extraordinary effects of the recipient government predicts will have by relying on scoring methodologies pandemic that began in 2020. Further, the effect of reducing tax revenue in a that do not incorporate projected effects as discussed above,the interim final given reporting year, similar to the way of macroeconomic growth,the rule recognizes three potential ways that it would in the ordinary course of its estimation of the value of covered a recipient government may offset or budgeting process. The interim final changes relies on fewer assumptions "pay for"a reduction in net tax revenue rule states that the value of these and thus provide greater consistency due to a covered change:Increases in covered changes may be reported based among states and territories. Finally, as taxes, decreases in spending,and on estimated values produced by a discussed below,the interim final rule organic revenue growth. U.S.gross budget model,incorporating reasonable includes a de minimis threshold,below aligns domestic product rebounded to exceed assumptions,that a gns with the which the sum of covered changes will recipient government's existing be deemed not to have an revenue- its pre-pandemic level in 2021,359 approach for measuring the effects of reducingeffects. y suggesting that an FY 2019 pre- fiscal policies, and that measures these effects relative to a current law baseline. Timing of the Impact of Covered 357 As discussed in section Revenue Loss of this If the recipient would prefer,the Changes Supplementary Information,for purposes of measuring revenue lost due to the pandemic under covered changes may also be reported Public Comment:Several commenters sections 602(c)(1)(C)and 603(c)(1)(C),recipients based on actual values using a statistical expressed concern that recipient must adjust the amount of revenue lost to reflect methodology to isolate the change in governments,to evade the offset changes that resulted from a tax increase or year-over-year revenue attributable to decrease.These adjustments do not apply to or prOVlSlOn,may backload the costs Of affect the definition of tax revenue. the covered change(s),relative to the certain covered changes outside of the 358 U.S.Department of Commerce,Bureau of current law baseline prior to the covered period,and advocated that Economic Analysis,GDP Price Deflator,https:// change(s).361 Further, estimation covered changes be instead evaluated as www.bea.gov/data/prices-inflation/gdp-price- approaches may not use dynamic the net present value in the year that the deflator(last visited Apr.30,2021).The FY 2019 baseline revenue is adjusted annually for inflation methodologies that incorporate the covered change is enacted. These to allow for direct comparison of actual tax revenue commenters argued that some tax cuts in each year(reported in nominal terms)to baseline 360 One commenter requested clarification that could have effects on tax revenue for revenue in common units of measurement;without references to fiscal year refer to the fiscal year of many decades or could be structured to inflation adjustment,each dollar of reported actual the recipient."Reporting year"is defined in the tax revenue would be worth less than each dollar interim final rule and final rule to mean"a single take effect after the end Of the covered of baseline revenue expressed in 2019 terms. year or partial year within the covered period, period. 359 Economy Statement by Catherine Wolfram, aligned to the current fiscal year of the State or Treasury Response:As discussed in Acting Assistant Secretary for Economy Policy,for Territory during the covered period." section Timeline for Use of SLFRF the Treasury Borrowing Advisory Committee 361 By permitting recipient governments to use Funds, SLFRF funds must be used to November 1,2021(Nov.1,2021),available at actual or estimated values,the interim final rule https:llhome.treasury.gov/news/press-releases/ and final rule provide flexibility to recipients and cover costs incurred prior t0 December jy0453. thus minimizes burden. 31, 2024. Accordingly, SLFRF funds