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States Facing Budget Gap Totaling $650 Billion Over 3 Years (2)

April 30, 2020, 5:48 PMUpdated: April 30, 2020, 10:54 PM

States are facing a budgetary abyss, a think tank warned. Texas will continue to allow alcohol-to-go sales. Minnesota’s GOP-led Senate has passed “economic recovery” legislation, while Illinois legislators won’t be back to talk about their budget hole until the end of May. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Wednesday’s coverage click here. Here’s a state-by-state roadmap.

An analysis backed by data from the Congressional Budget Office contends the pandemic could trigger state budget shortfalls of $650 billion over three years.

The Center on Budget and Policy Priorities, a progressive think tank, on Wednesday issued a new estimate of the coronavirus outbreak’s impact on the states based on recent CBO data and updated projections from economists at Goldman Sachs.

The revised estimate suggests states will experience revenue shortfalls “substantially deeper than during the Great Recession.” Specifically, CBPP estimated losses of $110 billion for fiscal year 2020, $350 billion for fiscal year 2021, and $190 billion for fiscal year 2022. Those numbers compare to the estimate of a $500 billion shortfall the center announced in mid-April.

“The new figures—significantly higher than estimates we recently issued based on economic projections of a month ago—increase the urgency that policymakers enact additional federal fiscal relief and continue it as long as economic conditions warrant,” Michael Leachman, the institute’s senior director of state fiscal research, wrote in the analysis.

Texas Booze To Go to Continue

Takeout margaritas and other taxable alcohol beverages will remain on the menu in Texas, perhaps even after the pandemic ends, Gov. Greg Abbott (R) says.

Although restaurant dining rooms across the state will be allowed to open at the start of May, albeit with a 25% occupancy limit, they’ll still be able to offer beer, wine, and mixed drinks with their takeout food order as part of a waiver Abbott signed in March to support the state’s reeling hospitality industry. “Alcohol-to-go sales can continue after May 1,” the governor said in an April 28 tweet tagging Texas lawmakers. “From what I hear from Texans, we may just let this keep on going forever,” he said.

The governor’s comments follow a pair of April warnings by the state comptroller, Glenn Hegar, of probable downward revenue revisions to the revenue forecast and the announcement by Lt. Gov. Dan Patrick (R) that lawmakers would discuss the pandemic’s impact on the state budget in the next legislative session.

Derived in part from a mixed beverage sales tax rate of 8.25%, a beverage gross receipts rate of 6.7%, Texas has collected on average nearly $1.24 billion in alcohol taxes over the last five fiscal years, according to state data.

Minnesota’s GOP-led Senate Passes Tax Bill


The Minnesota Senate passed Covid-19 “economic recovery” legislation on Thursday, offering a menu of tax breaks and tax payment extensions targeted to small businesses.

The GOP-controlled Senate approved S.F. 3843 by a vote off 40-27. Among other things, the bill codifies the Department of Revenue’s earlier extension of the filing and payment deadline for individual income taxes to July 15, 2020, and brings Minnesota into conformity with Section 179, removing the 80% add-back requirement for expensing for individual filers and corporations.

In addition, S.F. 3843 creates a higher qualifying income threshold for the state’s K-12 tax credit, eliminates the sunset date for the Angel Investment Tax Credit, and lightens the tax burdens from the charitable gaming tax. Significantly, the bill doesn’t include a provision exempting Social Security income from state taxation, which had been a key priority for Republicans.

“Businesses badly need cash flow and stability if they have any hope of retaining workers and eventually rebuilding when this over,” said Senate Tax Committee Chairman Roger Chamberlain (R), who sponsored the measure. “The economic destruction of the coronavirus and the stay-home order has made this recovery package more urgent than ever.”

The Senate bill faces a chilly reception in the Democrat-controlled House, which is crafting its own recovery bill together with Gov. Tim Walz (D). The House is expected to target relief for workers and housing assistance to low-wage workers.

Talks on Illinois Budget Gap Must Wait

The Illinois General Assembly won’t take up the budget and economic recovery issues associated with the pandemic until the end of May, a key legislator told Bloomberg Tax on Thursday.

Rep. Michael Zalewski (D), chairman of the House Revenue and Finance Committee, said the House and Senate remain on hiatus due to the contagion and likely won’t return to the capitol until the last week in May. Returning to Springfield for a quick session before June 1 would be important, he said, allowing lawmakers to pass a budget with a simple majority as specified in the state constitution.

In the meantime, lawmakers are working remotely to hash out strategies for closing a projected $2.5 billion budget gap for the remainder of FY 2020 and a much broader gap of between $4 billion and $14 billion for FY 2021, as projected by the Institute of Government and Public Affairs at the University of Illinois. Zalewski said there were too many unanswered questions to begin considering how to fill the budget gaps.

“I don’t see an appetite at the moment for us to even consider a path to tax increases until we can be face to face with each other, and understand the effect of the virus, and understand what the federal government is going to do to help state and local governments,” he said.

Hawaii Excise Tax Won’t Apply to Relief Payments


Hawaii won’t impose its general excise tax on grants and payments under the federal coronavirus relief law (Public Law 116-136) that replace or supplement income, the Aloha State’s tax agency said.

Normally payments received for Pandemic Unemployment Assistance (PUA), loan amounts forgiven under the Paycheck Protection Program (PPP), or Economic Injury Disaster Loan (EIDL) grants would be subject to state general excise tax, according to a Taxation Department notice (TIR No. 2020-02) issued late Wednesday.

But the agency said that—“in light of the severity” of the pandemic’s economic impact—it will treat those amounts as exclusions from gross receipts that shouldn’t be reported on general excise tax returns.

Hawaii generally follows the federal government on income tax treatment, so PPP and EIDL economic impact payments and loan proceeds aren’t subject to state income tax, while payments under the PUA and Federal Pandemic Unemployment Compensation are. But the agency said it plans to recommend state legislation necessary to conform to the federal relief law’s provision that forgiven PPP loan proceeds aren’t included in gross income. Under current law, it said, forgiven PPP loans are subject to Hawaii income tax.

Delaware Seniors Get Another Month for Property Tax Credit

Delaware homeowners age 65 or older have another month to apply for the state’s senior school property tax credit, Gov. John Carney (D) announced Thursday.

The executive order extends the application deadline from April 30 to June 1. The program offers seniors a 50% property tax credit, up to $400, on a primary residence.

—With assistance from Paul Stinson in Austin, Texas.

To contact the reporters on this story: Michael J. Bologna in Chicago at mbologna@bloomberglaw.com; John Herzfeld in New York at jherzfeld@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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