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Georgia, North Dakota Warn Agencies to Prepare Budget Cuts (2)

May 1, 2020, 4:02 PMUpdated: May 1, 2020, 8:29 PM

State agencies in Georgia and North Dakota have been ordered to prepare budget cuts. Texas, Connecticut and Pennsylvania, meanwhile, get some sobering news on their budget outlooks. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Thursday’s coverage click here. Here’s a state-by-state roadmap.

Georgia’s state agency heads were told Friday to prepare for budget cuts of 14% due to the pandemic’s impact on the economy and tax revenue.

Memos announcing the proposed cuts, sent to state agencies and departments and the state education superintendent by Gov. Brian Kemp’s (R) budget chief and two key Republican legislators, would apply to fiscal year 2021, which begins July 1. The state Legislature plans to return from a suspended session in June to pass the budget. The memos set a May 20 deadline for submitting budget requests to the governor’s budget office and House and Senate budget committees. Georgia’s 2020 budget allocated $27.5 billion in state funds—not counting federal funding sources that brought the total budget to $53 billion.

“We find ourselves in extraordinary times,” wrote state Rep. Terry England (R), and state Sen. Blake Tillery (R)—chairs of the House and Senate budget committees—and Kelly Farr, director of the governor’s Office of Planning and Budget. “Covid-19 has dealt a blow to our local, state, national and world economy like none we have seen in our lifetimes. As you know, we have a strict Constitutional mandate to create and adopt a balanced budget for our state.”

Last August, well before the contagion hit, Kemp had asked state agency heads to plan for 6% budget cuts in fiscal 2021 in the name of government efficiency; that request had exempted public education and Medicaid.

The new request for a 14% cut applies to all areas of the state budget, no exceptions, according to the memos.

North Dakota Calls for Budget Cuts

Gov. Doug Burgum (R) said Friday that he was asking North Dakota state agencies for cuts of between 5% and 15% in their budget proposals for the 2021-2023 biennium.

The health crisis has hit the state hard, bringing on a dramatic drop in oil demand and exacerbating already low oil prices, and the possibility of a historic collapse in oil tax revenue, he said at a budget presentation.

Oil tax revenues have represented between 17% and 24% of the state’s general fund revenues over the past dozen years, he said.

Other sources of state revenues, including sales taxes, corporate taxes and individual income taxes, tend to rise and fall along with oil tax revenues, meaning they are likely to decline as well, Burgum said.

But he declined to make a prediction about revenue.

Burgum said he’s asking the agencies with budgets below $5 million per year to submit budget proposals that are 95% of their current base budget.

Agencies with budgets between $5 million and $20 million should submit budget proposals that are 90% of the current base, and larger agencies, 85% of the current base, he said.

On the positive side, he said, the state budget stabilization fund is fully funded at $726 million; and revenue has been running ahead of forecasts by around $121 million, with oil tax revenues about $82 million ahead of expectations.

Texas Tax Receipts Tumble

Texas’s total April tax collections slid nearly 20% from a year earlier, hit by the one-two punch of dropping oil prices and the pandemic.

“State sales tax collections declined as a result of efforts to stem the spread of Covid-19 through business closures, crowd limits and stay-at-home orders adopted in the state, as well as a precipitous drop in worldwide demand for oil,” Texas Comptroller Glenn Hegar said in a Friday release.

Revenue figures in that category totaled $2.58 billion in April, marking a year-over-year drop in state sales tax revenue of 9.3%—the steepest decline in that category since January 2010, the comptroller’s spokesman, Kevin Lyons, said. Sales tax is the largest source of state funding for the state budget, the comptroller’s office noted, accounting for 57% of all tax collections.

The announced figures which primarily reflect March business activity, arrive on day one of Gov. Greg Abbott’s (R) first phase of gradually reopening retail stores, restaurants, movie theaters, and malls.

All but one of the state’s 12 collections categories posted a drop into negative territory, with the Texas linchpins of franchise tax and oil production posting declines of 48% and 45%, respectively. Collections of taxes in the categories of motor vehicle sales and rentals, insurance, natural gas production, alcoholic beverages, and hotel occupancy all saw drops of 40% or more.

Cigarette and tobacco tax collections posted a 14% increase for the month, marking the only positive figure.

Dire Projections in Connecticut

Gov. Ned Lamont (D) on Friday painted a grim picture of Connecticut’s financial outlook, saying the state is staring at a $934 million deficit for the fiscal year that ends June 30.

The shortfall stems primarily from lower personal income tax withholding receipts, which fell 3.7% in March, said Melissa McCaw, secretary of the Connecticut Office of Policy and Management, who spoke with Lamont at a briefing.

The budget presented for the coming fiscal year assumes that Connecticut won’t receive additional federal aid, Lamont said. The state’s rainy day fund will help it through the end of the fiscal year, and it can be stretched into the next fiscal year but it will be inadequate to cover the expected shortfall, McCaw said.

The state has received $1.4 billion from the third federal virus response act (Public Law 116-136), known as the CARES Act, but that’s only for expenses related to coronavirus, Lamont said. Connecticut has distributed $150 million to hospitals that have lost revenue because elective surgeries and procedures that were suspended amid the pandemic.

Connecticut’s budget for the fiscal year starting July 1 is $20.2 billion. But revenue is expected to reach only $18 billion, leaving a $2.1 billion shortfall, McCaw said.

The state expects a 5% reduction in the growth rate for sales and use taxes, McCaw said. Those revenues will rebound, she said, but growth depends on when businesses reopen, when laid-off workers find new employment and when consumers have the confidence to spend money again.

Pennsylvania April Collections Plunge

Pennsylvania’s Department of Revenue collected only $2.2 billion in April for its general fund in April, about 50% below expectations, Revenue Secretary Dan Hassell said Friday, as the state extended several tax deadlines to provide relief to taxpayers.

Pennsylvania extended its traditional April 15 deadline for filing income returns to July 15, in line with the Internal Revenue Service’s revised due date and most states. Hassell attributed $1.7 billion of the shortfall to the new filing dates, adding that he expected “the majority” of that to be paid “when those tax payments occur in the next fiscal year.” Hassell attributed $395.3 million of the April shortfall directly to the pandemic’s impact on economic activity.

Pennsylvania collected $361.4 million less sales and use taxes than it had anticipated. It cited recent waivers the department has granted to let some businesses temporarily suspend payments, as the primary reason for collection drop-off. Personal income tax withholding also fell $104.5 million short of projections.

Mississippi Lawmakers to Address Budget Next Month

House Speaker Philip Gunn (R) said the Mississippi Legislature would probably take up the state budget in June after revenue numbers from April and May become available.

“Prior to the pandemic we were in great financial shape,” Gunn said at a Friday morning news conference. “Revenues for the month of April have been down, as we could fully expect. We anticipate the revenues for the month of May will be down also.”

The current fiscal year ends June 30. Lawmakers will push back all budget decisions as late as possible so as to have as much new information as possible, he said.

The Mississippi Legislature had expected to reconvene May 18, two months after lawmakers recessed because of the pandemic.

Legislators were called back to Jackson, the capital, on Friday to consider a proposal by Gunn and Lt. Gov. Delbert Hosemann, the president of the state Senate, to add $1.25 billion allocated to Mississippi under the CARES Act to the Legislative Budget Office contingency fund to be appropriated by state lawmakers instead of Gov. Tate Reeves. The money would still be spent only on state agencies’ expenses related to coronavirus and not to fill budget gaps.

Reeves opposes this proposal. If he vetoes it, it would take two-thirds of the House and Senate to override him.

Washington D.C. Property Tax Relief

Property owners in the District of Columbia are receiving extra time to evaluate their tax liability.

The district is extending deadlines for owners to appeal their property tax assessments in wake of complications caused by the pandemic, the district’s Office of Tax Revenue announced Thursday.

Property owners have until May 15 to appeal their first level assessments for tax year 2021, May 15 to file for an exempt property annual use report, and June 1 to file income and expense reports.

Wisconsin May Relax Lodging Tax Rules

Wisconsin municipalities would be permitted to administer flexible lodging tax rules in response to the pandemic, under proposed guidance issued by the state Department of Revenue.

The department specified that cities and counties may extend room tax payment deadlines, or pursue regular collections if no relief is provided. In addition, lodging providers can request relief from municipal room taxes at the municipality’s discretion, the department said.

Made with Flourish

—With assistance from Michael J. Bologna in Chicago, Christopher Brown in St. Louis, Paul Stinson in Austin, Texas, and Sam McQuillan in Washington D.C.

(Adds North Dakota budget cuts and Texas's falling revenue. A previous update added Mississippi lawmakers, Washington D.C. property tax relief, and Pennsylvania and Connecticut finances.)

To contact the reporters on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com; Jennifer Kay in Miami at jkay@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com