Lost Revenues under HEERF Defined

Higher Education institutions have seen more than $75 billion provided through the Higher Education Emergency Relief Funds program (HEERF) from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (HEERF I), the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA) (HEERF II) and the American Rescue Plan (ARP) (HEERF III).  All three HEERF funds require a certain level of spending to go directly to students as emergency financial aid grants.  They also allow a certain amount to be used to offset institutional expenses due to significant changes to the delivery of instruction or other expenses directly related to the coronavirus pandemic.

The concept of reimbursement for lost revenue falls into the institutional portion of all three funds.  However, there has not been ample guidance on what is defined as “lost revenue" and how it can be calculated - until now.

On March 19, 2021, the Department of Education (DOE) published the HEERF I, II, and III Lost Revenue Frequently Asked Questions to provide further guidance.  In this FAQ, the DOE cautions institutions that they should devote the maximum amount of funds possible to financial aid grants for students and prioritize costs associated with student safety and support and testing services.  Here is what you need to know if you determine to charge lost revenue to any of the three HEERF funds.

• Allowable sources of lost revenue may include, but are not limited to, the following:
  • Academic sources:  tuition, fees, and institutional charges (including unpaid student accounts receivable or other student account debts), room and board, enrollment declines, including reduced tuition, fees, and institutional charges, supported research, summer terms and camps.
  • Auxiliary services sources:  cancelled ancillary events, disruption of food service, dormitory services, childcare services, use of facilities or venues, including external events such as weddings, receptions, or conferences (other than facilities associated with sectarian instruction or religious worship), bookstore revenue, parking revenue, lease revenue, royalties, other operating revenue.
• Unallowable sources of lost revenue include the following:  capital outlays associated with facilities related to athletics (including fees assessed for capital athletic facility construction), acquisition of real property (including bond revenue), contributions or donations to the institution, marketing or recruitment activities, revenue related to sectarian instruction or religious worship, alcohol sales, investment income (including endowment and quasi-endowment revenue). 
• In other words, the lost revenue reimbursement must be used for activities and expenditures that are generally allowable under the HEERF grant program, which are primarily associated with coronavirus pandemic.
• Institutions are able to calculate lost revenue from March 13, 2020, the day of declaration of the national emergency, through the end of its HEERF grant performance period.
• The lost revenues will be shown on the Schedule of Federal Expenditures (SEFA) in the year that it is charged against the award.  If an institution now decides to charge lost revenues dated back to March 13, 2020 to HEERF I, it would be included on the 2021 SEFA.
• There is flexibility on how the lost revenue can be calculated, as long as it is reasonable and consistent with cost principles under Uniform Guidance. 
• Lost revenue may not include the estimated amount of lost revenue for another federal program (such as the CARES Act).
• Lost revenue may not include any refunds previously provided to students.  For example, if an institution charged the refunds given to students against the HEERF I Fund, then this amount should not be included in the calculation of lost revenue.

This new guidance gives added clarity, as well as flexibility, to institutions and how the institutional portion of HEERF funds received can be utilized.  To support the institution’s determination of these uses, it is imperative that appropriate documentation is kept.  This should include documentation of the institution’s rationale, calculations, methodology, underlying data and budget or projections utilized.  This documentation must be retained for a period of three years from the date of submission of the final expenditure report.  Your auditors will be asking for it!

See the last page of the FAQs for examples of calculating HEERF Lost Revenue.

Schneider Downs also has other articles in this series:

• DOE Announces Changes to HEERF Guidance
• Department of Education Issues HEERF Clarifications to Common Questions
• What is lost revenue according to the Department of Education?