How will COVID-19 impact state and local governments?

The short answer: It’s going to hurt.

The City of Tulsa has already imposed a hiring freeze. It also owns its arena and convention center, at which there will be no events, nor revenue coming in, for the foreseeable future, according to Governing. The same article notes that

Last week, even before many businesses shut down, Seattle — a pandemic hot spot — was projecting a shortfall of $110 million in revenue, or 7 percent of its general fund. That would be a major hit, but now it seems like an optimistic figure.

Nearly all sources of revenue for state and local governments – personal income, corporate income, sales and gas taxes – will decline.

“The likely scenarios for the Columbus economy are not good and will require federal, state and local stimulation to rebuild businesses’ balance sheets and turn things around for our most vulnerable workers,” wrote Columbus, Ohio, auditor Megan Kilgore in a memo to elected officials (reported in Columbus Business First). Job losses have skyrocketed, and Columbus and other Ohio municipalities depend heavily on income tax for revenue (in Columbus’s case, income tax is 73 percent of city revenue).

Budgeting will be extra tough this year because billions in state tax revenue is evaporating quickly, according to Politico. Some states are in better shape than others; California has both a budget surplus and a reserve fund, while Illinois lacks a similar cushion. New Jersey’s governor expects states ultimately will need $3 trillion to $4 trillion in federal aid.

In Florida, “lawmakers scaled back planned tax cuts and boosted the state’s $3.9 billion cash reserves by $300 million to prepare for the coronavirus response.” UCLA economists released a report earlier this week contending that U.S. economy “has entered a recession expected to last until September, and that California will suffer more than most.” A best-case scenario for New York sees tax revenues $4 billion below previous projections for the coming fiscal year, and “New York City alone faces at least a $3.2 billion hit to its bottom line as travel dwindles and restaurants, bars and theaters close indefinitely, a steep loss in tax revenue that will extend for six months.”

The chair and vice-chair of the National Governors’ Association submitted a request on March 20 to Senate leaders asking for “$150 billion in immediate direct aid to the states, with maximum flexibility for governors’ COVID19 efforts.” In addition, NGA leaders have asked for an increase in the federal share of Medicaid funding for the states.

In Colorado, state economists cut projected revenues for the 2021 fiscal year by $750 million, according to Colorado Public Radio. Texas’s budget is facing the double doozy of the oil price war and the coronavirus, notes Texas Monthly. Reduced sales and income taxes are already hurting Mississippi’s budget; the state’s economy took longer than most to recover from the Great Recession, reports the Clarion-Ledger.

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