Impact to State Revenues ‘Like Nothing We’ve Seen Before’

March 27, 2020, 9:38 PM

The impact of the novel coronavirus pandemic on state budgets will be “like nothing we’ve ever seen before,” officials said during a webinar Friday held by the National Conference of States Legislatures.

State lawmakers, forced to end sessions early in many cases, will be looking toward special sessions later in the year to get their economies moving again after such a huge hit on their finances.

“The estimates we’re seeing for reduced revenues are significant,” said Erica MacKellar, liaison to the National Association of Legisaltive Fiscal Offices, a professional staff association of the NCSL. “Those states reliant on sales tax revenue are taking an immediate hit” given that many businesses are shut down nationwide, she said.

Fiscal Stress

She said examples of the fiscal stress states face include the following:

  • An estimated 15% to 17% decline in tax revenues in Vermont;
  • Revenue projections for Colorado—which hasn’t yet passed its fiscal year 2020-21 budget—slid by $900 million for fiscal 2020-2021 in a recent estimate;
  • California says it will see several billions of dollars in losses in capital-gains taxes;
  • In New York, where the fiscal year ended March 1, revenues could be $7 billion less than anticipated.

States that rely on tourism and oil prices are going to be especially hard-hit, she said. Hawaii reported it would get $340 million less for its budget biennium after the state started closing to visitors. Alaska and North Dakota wrote budgets with assumptions the price of a barrel of oil would be $40 and $48, respectively. The price of a barrel of U.S. standard West Texas intermediate crude oil dropped Friday below $23.

Special Sessions

Given that roughly half of the states have already enacted their 2020-21 budgets, “we’ll see a lot of special sessions later in the year” to deal with declining revenues, MacKellar said.

“Several states were in the middle of their sessions, and they suspended them with the hope they can meet before the end of the fiscal year, July 1,” she said. “As these stay-at-home orders are lifted, and they convene again and try to jump-start their economies, they are going to have less revenue to support those efforts.”

Dan White, director of government consulting and fiscal policy research at Moody’s Analytics, said the coming recession will have a much larger impact on tourism, trade, and commodities like energy and agriculture.

‘No Place to Hide’

Every economy we’ve looked at around the world is going to go into a recession,” he said. “Having no place to hide is really unusual, and not something we’re like to forget any time soon.”

But, he said, the stress comes after the longest period of expansion in modern American history, so a lot of states were in a good position before the pandemic arrived. “We’ve had a lot of time to prepare for this,” he said.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

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

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