Calculation of Lost Revenue for Institutions of Higher Education

The Coronavirus Response and Relief Supplemental Appropriations Act of 2020 (CRRSAA) included a provision to allow Institutions of Higher Education (IHEs) to reimburse themselves for lost revenue due to the coronavirus pandemic. Many IHEs have questions on what is considered lost revenue as well as how lost revenue should be calculated and supported. The Department of Education (ED) has issued an FAQ that answers many of the questions put forth by IHEs. The IHEs must now decide which calculation method to utilize to support lost revenue at their respective institutions.

Definition of Lost Revenue

Due to some difficulty in determining exactly when revenue declines occurred during the pandemic, the ED noted that any lost revenue starting March 13, 2020 (the date of the disaster declaration) can be claimed as lost revenue. Since the CRRSAA was written into law on December 27, 2020 and made retroactive, an IHE could go back to March 13, 2020 and recalculate all of their lost revenue. They could apply that lost revenue to the Higher Education Emergency Relief Fund (HEERF) 1.0 or HEERF 2.0 funds. This would be recorded on the June 30, 2021 Schedule of Expenditure of Federal Awards (SEFA).

Lost revenue includes academic sources such as tuition, fees, institutional charges, room and board, lost research money, summer terms and summer camps. Auxiliary revenue includes cancelled events, which would include events that were scheduled, but cancelled because of the pandemic or yearly events that are held, that could not be held because of the pandemic. Auxiliary revenues would also include food service revenue, dormitory services, childcare services, use of facilities or venues, bookstore revenue, parking lot revenue, lease revenues, and royalties.

There are some revenue streams which are specifically not allowable under the lost revenue calculation. These revenue streams include capital outlays associated with athletic facilities, acquisition of real property, contributions or donations to the institution, marketing or recruiting activities, revenue related to sectarian instruction or religious activities, alcohol sales, and investment income.

Calculation of Lost Revenue

The FAQ gives specific methods to calculate lost revenue that the IHE has incurred during the pandemic. The IHEs must be consistent with the cost principles of the Uniform Guidance; therefore, any calculation must be consistent in the treatment of all revenue streams, meaning once you select a method that method must be applied to all revenue streams. The IHE should also ensure that the amount of lost revenue for the HEERF program is not included in the calculation of lost revenue for another federal program (double dipping). Also, if the institution refunded money to students and paid those refunds through HEERF, those refunds cannot be included in the calculation of lost revenue.

The following are the five methods to calculate lost revenue. It is important regardless of the method chosen, that there is adequate documentation for the amount of lost revenue the IHE is claiming and drawn down from the G5 system.

• A year over year comparison using the prior year;
• A semester-over-semester comparison using the prior year semester Fall 2019 vs Fall 2020;
• A comparison using a 3 or 5 year combined average revenue as baseline revenue;
• A comparison to previously budgeted revenue or projected revenue for the period; this would not include an adjusted amount after the pandemic occurred;
• A comparison with a baseline year of a fiscal year prior to the March 13, 2020 national emergency declaration, such as the fiscal year from July 1, 2018-June 30, 2019

To determine which of the above methods is most beneficial, an institution not only has to think about tuition and fees but should also take into account auxiliary enterprises especially if those revenue streams are material. Ultimately the IHE must decide which calculation to utilize and then apply that calculation to all revenue streams to reimburse itself for lost revenue. IHEs should also keep in mind the earmarking requirements included in HEERF 1.0 and HEERF 2.0 that must be met at the end of the grant period. These include total student expense in relation to total institutional expenditures. If an institution does not believe it will expend a sufficient student portion, it should adjust institutional expenditures considered or risk having to return some of the HEERF 1.0 and HEERF 2.0 funds. Please contact us if you have any questions.