Agenda - Council Work Session - 03/08/2022

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Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations 4427 generally would not be able to offset a Public Comment:Commenters for the reasons discussed above, reduction in net tax revenue occurring expressed a range of views regarding the Treasury is maintaining the after December 31, 2024. amount of the de minimis. Some measurement of actual tax revenue For these reasons,Treasury is commenters argued that the de minimis without adjustment for population maintaining this element of the interim was too generous,noting that the choice growth. final rule without change. of 1 percent could,in some cases, (4) Consideration of other sources of (2)In excess of the de minimis. Under permit reductions in net tax revenue of funding.The recipient government will the framework established in the hundreds of millions of dollars. These then identify and calculate the total interim final rule,after establishing that commenters advocated that the de value of changes that could pay for a covered change occurred,the recipient minimis be lowered(e.g.,to 25 basis revenue reduction due to covered government next calculates the total points) or be tied to a fixed amount. changes and sum these items. This value of all covered changes in the Other commenters argued that the amount can be used to pay for up to the reporting year resulting in revenue choice of de minimis was not well total value of revenue-reducing changes reductions,identified in Step 1. If the supported by the statute, advocated for in the reporting year. These changes total value of the revenue reductions a larger de minimis and suggested that consist of two categories: resulting from these changes is below the amount be tied to the recipient (a) Tax and other increases in the de minimis level,the recipient government's total expenditures in the revenue.The recipient government must government is deemed not to have any prior fiscal year. identify and consider covered changes revenue-reducing changes for the Treasury Response:Treasury adopted in policy that the recipient government purpose of determining the recognized a de minimis threshold as an predicts will have the effect of net reduction. If the total is above the de administrative accommodation for the increasing general revenue in a given minimis level,the recipient government reasons discussed above.As discussed reporting year.Recipient governments must identify sources of in-year revenue in the interim final rule,Treasury should use the same approach to to cover the full costs of changes that determined that the 1 percent de identify and value covered changes that reduce tax revenue. Under the interim minimis level reflects the historical increase tax revenue as applied to final rule,the de minimis level is reductions in revenue due to minor covered changes that reduce tax calculated as 1 percent of the reporting changes in state fiscal policies and was revenue. For the reasons discussed year's baseline. determined by assessing the historical above,Treasury is adopting these Public Comment:Many commenters effects of state-level tax policy changes aspects of identifying and valuing supported the inclusion of the de in state EITCs implemented to effect covered changes without change. minimis,notingthat the de minimis policy goals other than reducing net tax (b) Covered spending cuts.A recipient revenues.3sz government also may cut spending in protects recipients from penalty certain areas to a for covered changes resultingfrom minor or incidental For these reasons,Treasury is pay g adopting the 1 percent de minimis that reduce tax revenue,up to the changes,minimizes administrative Tent overnment's burden,and enhances predictability amount of the recipient without change. p g of (3) Safe harbor.Next,under the net reduction in total spending as the application of the offset provision.Some commenters expressed concern interim final rule,if the revenue described below. These changes must be reduction caused by the covered reductions in government outlays in an that the fixed threshold could result in changes exceeds the 1 percent de area where the recipient government has cliff effects.Treasury Response:A clear de minimis threshold,the recipient not spent SLFRF funds. To better align government compares the reporting with existing reporting and accounting, minimis threshold supports recipient year's actual tax revenue to the baseline. the interim final rule considers the governments' compliance with the offset If actual tax revenue is greater than the department,agency, or authority from provision.A de minimis level baseline,Treasury will deem the which spending has been cut and recognizes the inherent challenges and recipient government not to have any whether the recipient government has uncertainties that recipient governments recognized net reduction for the spent SLFRF funds on that same face,and thus allows relatively small reporting year,and therefore to be in a department,agency, or authority. If the reductions in tax revenue without safe harbor and outside the ambit of the recipient government has not spent consequence.In other words, states and offset provision. This approach is SLFRF funds in a department, agency, territories may make many small consistent with the ARPA,which or authority,the full amount of the changes to alter the composition of their contemplates recoupment of SLFRF reduction in spending counts as a tax revenues or implement other funds only in the event that such funds covered spending cut,up to the policies with marginal effects on tax are used to offset a reduction in net tax recipient government's net reduction in revenues.They may also make changes revenue.If net tax revenue has not been total spending. If they have spent SLFRF based on projected revenue effects that reduced,the offset provision does not funds in such department,agency, or turn out to differ from actual effects, apply.1 In the event that actual tax authority,the SLFRF funds generally unintentionally resulting in minor 'revenue is above the baseline,the would be deemed to have replaced the revenue changes that are not fairly amount of spending cut and only described as"resulting from"tax law organic revenue growth that has - reductions in spending above the changes. However,a de minimis does occurred,plus any other revenue raising amount of SLFRF funds spent on the not automatically result in changes,by definition must have been department,agency, or authority would consequences under the offset enough to offset the in-year costs of any count. This approach—allowing only provision, since a recipient government covered changes. One commenter spending reductions in areas where the could demonstrate that other,non- argued that the offset for organic growth recipient government has not spent SLFRF funds to offset a net reduction in be adjusted to reflect population growth. SLFRF funds to be used as an offset for tax revenue. Accordingly,any cliff To minimize administrative burden, and a reduction in net tax revenue—aims to effects associated with a clear de 362 Data provided by the Urban-Brookings Tax prevent recipient governments from minimis threshold are mitigated by Policy Center for state-level EITC changes for 2004— using SLFRF funds to supplant state or other aspects of the framework. 2017. territory funding in the eligible use