The global pandemic has caused U. S. state governments a collective loss of $31 billion in fiscal gains and is expected to worsen with no more federal stimulus in sight.
The new figures come from research by the Urban Institute on state tax revenue collected in the first six months of the pandemic (between March and August), compared to the same time a year earlier. The loss represents a 6. 4% drop in gains in the 44 states whose data will be available through August.
The drop in revenue could be even steeper in the coming months, warns the report’s author, Lucy Dadayan. He points out that the $1,200 per adult federal stimulus checks and additional $600-per-week federal unemployment insurance contained in the March CARES Act campaign helped to some extent generate tax revenue this summer, but those benefits have largely expired.
“Sales tax revenues will also remain depressed,” he wrote. “As states reopen their economies, it will take a long time for business activity to return to pre-pandemic levels, with some activities and industries facing a very slow recovery and others will not be replenished by consumption, for example, or entertainment purchases from the past six months.
August Helped
For anyone following the situation, tax benefits increased in August, helping to stem the tide. But that doesn’t mean the economy and state budgets are going to improve. This is more due to the fact that early in the pandemic, states indicate that income tax collection and (in some cases) sales tax collection was delayed and cash that arrived in July and August was commonly delayed. In addition, those tax returns reflect pre-recession economic activity in 2019. This is also why it is vital to have a global view and not a monthly one.
It is also useful to place these figures in the context of the budget cycle. In fact, states are experiencing those profit drops at a time when they might have otherwise expected a 2% or even 3% increase in profits. Under these conditions, Covid-19 is having an even more devastating effect on budgets.
Income losses vary across the state
A total of 36 states reported drops in general taxes between March and August, with Alaska, Florida, Hawaii, Minnesota, Oregon and Texas reporting drops of more than 10%.
Eight states — Alabama, Colorado, Georgia, Idaho, Nebraska, South Dakota, Vermont and Washington — saw modest expansion over the same period.
A total of 36 states have seen their revenues decline since the start of the pandemic.
What’s next?
Looking ahead to the next nine months, the Center on Fiscal and Policy Priorities says that “earnings may fall as much, or more, than in the worst year of the Great Recession and remain depressed for years to come. “, for example, earnings from allocations fall by as much as 17% or more if the recession is deep. California expects its profits to decline by $32 billion (about 20%) in 2021 alone, according to its Department of Finance.
In addition, governments are spending all kinds of money on unforeseen expenses: protective equipment, supplies, overtime, technology, to name a few. Although some of this will be reimbursed through the CARES Act or FEMA, the federal money set aside probably won’t be enough. Discussions about a new stimulus deal have been steadily stalled since June, with Tom Kozlik of Hilltop Securities noting last week that “there now appears to be a minimal chance of federal relief that public finance entities can be used simply to cover budget deficits. “
The revised and scaled back House HEROES Act worth $2. 2 trillion, passed in a cross-party vote on Oct. 1, calls for $436 billion in additional aid to state, local, tribal and territorial governments. But between the national election and the contentious nomination of Judge Amy Coney Barrett to the U. S. Supreme Court, the Senate will almost certainly do nothing anytime soon to ease the pandemic. (While Senate Majority Leader Mitch McConnell has said he will call a vote on a meager $500 billion stimulus package on Oct. 19, Democrats will most likely succeed in the filibuster. )
When it comes to the monetary fitness of states and local governments, much depends on elections. “If Joe Biden takes the White House and the Democrats take the Senate and keep the House,” Kozlik says, “significant relief could be provided on the horizon on Nov. 3. “