How to Automatically Calculate Eligible Lost Revenues for ARPA Funding with Questica

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The US Treasury has provided local governments across the country with specific guidelines for the use of American Rescue Plan Act (ARPA) funds. One of the many uses of ARPA funds is to account for the “Loss of Revenue.” This is where public sector agencies will have the most discretion for the use of funds. However, there is a complex formula attached to the calculation of projected lost revenues. Accurately performing this calculation may prove challenging for many governments, and, thus could prove to be a barrier while utilizing the funds where they are needed most. Fortunately, Questica has solved this challenge for state and local governments by creating this formula as a built in, automated feature within its budgeting software.  



What constitutes as ‘Loss in Public Revenue’ as per the ARPA guidelines?

ARPA allows local governments and agencies to use dollars to fund a broad range of government services, wherein local governments have experienced a reduction in general revenue during the pandemic. This category provides the broadest public expenditure discretion for local governments. Still, it is limited to only a particular portion of a unit’s ARPA funds, as determined by a Lost Revenue formula.

What is the purpose of this ARPA expenditure category?

This category was introduced to enable governments and related agencies to continue providing valuable services without being hampered by the fiscal impact of the pandemic. Specifically, it can be used to cover budget shortfalls created due to the ‘Loss of Revenue during the pandemic. Government services can include, but are not limited to, maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.

What expenses aren’t covered under the Lost Revenue category of ARPA?

ARPA funds MAY NOT be used to pay interest or principal on outstanding debt, replenish fund balance or other financial reserves, or pay settlements or judgments that would not be considered provision of a government service. This restriction includes short-term revenue or tax anticipation notes or paying fees or issuance costs associated with new debt issuance. In addition, eligible uses do not include depositing funds into any pension fund. 


How can governments ensure compliance with acceptable expenses outlined as Loss of Revenue”?

While there is a formula provided to compute the amount of funds allocated towards minimizing the gap between expected revenue and actual revenue earned during the pandemic, it requires more groundwork. Apart from ensuring you have all the records in place from the previous years’ budgets and revenue reports, there are additional rules as to what types of funds can be included to calculate revenue of past years as well as guidelines with respect to the aspects and areas for which funds can be used. 


Due to the sheer volume of dollars involved, not to mention the pressure to get things right in your planning and strategy process this can be a bit complicated to achieve.  


Considering most governments have already received a portion of ARPA funds, it’s advisable to get started as soon as possible. This will help gain a perspective on your agency’s overall fiscal health and allow you to identify gaps and optimize processes when the second installment of ARPA funds are received. 


How do I calculate the Loss in Revenue to ascertain the subsequent allocation of ARPA funds? 


In order to calculate the Loss of Revenue, the US Treasury FAQ 3.5 provides the following formula:  


Max {[Base Year Revenue from FY2018-19 * (1+Growth Adjustment) (n/12)]  Actual General Revenue as of 12-month period before calculation date; 0} 


 n = number of months that have elapsed between the end of the base year and the calculation date.  


This formula can be used to calculate the lost revenue at each of the four designated points in time. 


In order to run this formula, you must also have the following details: 

  • Revenues collected in the most recent full fiscal year prior to the public health emergency (i.e., last full fiscal year before January 27, 2020), called the base year revenue. 
  • Actual revenue, which equals revenues collected over the past twelve months as of the calculation date.  



Please Note – The extent of the reduction in revenue is equal to counterfactual revenue less actual revenue. If actual revenue exceeds counterfactual revenue, the extent of the reduction in revenue is set to zero for that calculation date. 


How can budgeting software help ensure compliance with acceptable expenses outlined as Loss of Revenue?

Questica Budget’s end-toend software, consulting services, and public-sector expertise will help you budget your ARPA funds more efficiently and accuratelyno matter how complicated the calculations might be. In fact, Questica has recently released a feature that enables users to automatically compute the Loss of Revenue. as outlined in the guidance provided by the Treasury. Since Questica Budget serves as a complete repository of historical budgets, all you need to do is run the Revenue Loss Formula instead of combing through stacks of disparate documents and Excel files. 


But that’s not all! When it’s time to report your ARPA fund allocation, you can use Questica Reports to calculate and communicate the complete budget summary at the fund, department, and cost center levels.

How do I ensure compliance with reporting?

For reporting purposes, governments will be required to submit a description of services provided. This must be done based on the criteria outlined by US Treasury Compliance and Reporting Guidance. This description may be in narrative or in another form, and recipients are encouraged to report based on their existing budget processes and minimize administrative burden. With Questica Budget, your organization can showcase all your data from previous years and then show the basis for your calculation and spending. 


Learn how Questica Budget can help you efficiently and accurately budget your ARPA funds  schedule a demo today!