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State and local governments last year slashed their revenue forecasts when the pandemic hit.
The fiscal picture hasn’t been nearly as dire as feared in many places. The problem: costs have soared, and layoffs too. https://www.wsj.com/articles/covid-19s-hit-to-state-and-local-revenues-is-smaller-than-many-feared-11612706030
The fiscal picture hasn’t been nearly as dire as feared in many places. The problem: costs have soared, and layoffs too. https://www.wsj.com/articles/covid-19s-hit-to-state-and-local-revenues-is-smaller-than-many-feared-11612706030
State revenues for example fell 1.8% from March-December, according to Urban Institute data, much less than the roughly 8% many expected.
Still, half of all states experienced shrinking revenue, with at least nine seeing a >5% drop. Five states have seen double-digit declines.
Still, half of all states experienced shrinking revenue, with at least nine seeing a >5% drop. Five states have seen double-digit declines.
Why were the forecasts so off? They were based on previous recessions, and this pandemic has been very different.
The CARES Act helped prop up households and businesses, keeping people employed and spending. Economic activity picked up and unemployment fell faster than expected.
The CARES Act helped prop up households and businesses, keeping people employed and spending. Economic activity picked up and unemployment fell faster than expected.
Also the brunt of this pandemic has been borne by low-wage workers, while high-income households have done better (thanks in part to a strong stock market). Property values have also held up.
That’s terrible for inequality, but has been a silver lining for state budgets.
That’s terrible for inequality, but has been a silver lining for state budgets.
So which states are struggling? It has little to do with blue v. red. And most states were in good financial shape before the pandemic.
Those who rely on revenue from tourism, services, or energy have been slammed. (Think Florida, Hawaii, North Dakota.)
Those who rely on revenue from tourism, services, or energy have been slammed. (Think Florida, Hawaii, North Dakota.)
States that rely more on income taxes, and have more progressive tax systems (like California) have done better.
Also, a 2018 Supreme Court decision allowing states to collect online sales taxes has made a big difference in this recession, when so much spending moved online.
Also, a 2018 Supreme Court decision allowing states to collect online sales taxes has made a big difference in this recession, when so much spending moved online.
As you can see from this great @anarivasWSJ tile map, the effects of the pandemic have varied widely. (And note the white squares mean incomplete data - but we know Alaska and Nevada have struggled with revenue losses, too)
