State Rundown 5/27: Some States Finally Talking Revenue Solutions to Revenue Crisis

This week the immense scale and uneven distribution of economic and health damage from the COVID-19 pandemic continued to come into focus, hand in hand with greater clarity around pandemic-related revenue losses threatening state and local revenues and the priorities—such as health care, education, and public safety—they fund. Officials in many states, including Ohio and Tennessee, nonetheless rushed to declare their unwillingness to be part of any solution that includes raising the tax contributions of their highest-income residents. On the brighter side, some leaders are willing to do just that, for example through progressive tax increases proposed in New York and corporate tax subsidy reductions discussed in California.

Major State Tax Proposals and Developments

• NEW YORK lawmakers reconvened this week to consider a range of bills in response to the COVID-19 pandemic. Bills include proposals to increase taxes on the wealthy to shore up much needed revenue, housing, rent and small business relief and a tax deduction for front-line medical workers. – AIDAN DAVIS
• COLORADO‘s legislative budget committee addressed the state’s $3.3 billion shortfall by making cuts including $448 million from K-12 education, $493 million from higher education, $111 million in state employee benefits, and suspending the senior homestead exemption for a year at a savings $164 million. – MARCO GUZMAN
• The ILLINOIS legislature passed a placeholder budget last week, authorizing the governor to borrow up to $5 billion and bear responsibility for any deep cuts needed to make up the difference. The budget includes economic relief via additional unemployment funding, rental assistance and health care. – LISA CHRISTENSEN GEE
• The LOUISIANA House approved a $30 billion budget that’ll head to the Senate. The budget helps offset losses with the rainy day fund, cuts to the health department and public college campuses, and spending freezes. The plan also uses nearly $1 billion of its $1.8 billion in federal coronavirus aid to rebalance this year’s and next year’s budget; lawmakers continue to debate about the remaining funds. – KAMOLIKA DAS

Recommended Reading on Responses to COVID-19 Pandemic

• The Center on Budget and Policy Priorities offers three key principles for anti-racist state responses to the pandemic.
• Route Fifty expands on the unequal racial and geographic distribution of COVID-19 comorbidities, explores the great variation in job losses from state to state, and explains how this combined health and economic crisis adds up to major increased costs for the joint state- and federally-funded Medicaid program.
• NPR discusses the devastating impacts of the financial crisis on school funding.
• Pew’s Fiscal Federalism project explains how the pandemic could have lasting effects on how state and federal governments support higher education institutions and students. Governing expounds on the challenges facing public higher education.
• Yahoo Finance delves into the sticky issue of how people shifting from physical commutes to remote work could affect their income taxes and state and local revenues.
• A bipartisan group of state attorneys general signed a letter urging Congress to pass the Secure and Fair Enforcement (SAFE) Banking Act as a part of a relief package to assist states dealing with the fallout of the coronavirus. The governors explained that tax revenue from marijuana sales could help states fill budget shortfalls.

State Roundup

• CALIFORNIAns are hoping additional federal aid will be approved to stave off the $14 billion of budget cuts they may have to make to K-12 schools and other priorities without it. The state also estimates about $1 billion of the gap can be made up by reducing tax breaks.
• COLORADO lawmakers have introduced a bill to temporarily reallocate gaming tax revenues to address the current budget crisis brought about by the coronavirus pandemic.
• Budget forecasters in DELAWARE shared some rare relatively good news with policymakers, reducing their estimate of the state’s revenue shortfall by $165 million over two years.
• A FLORIDA monthly revenue report revealed that state revenue was nearly $900 million less in April than a prior estimate. The drop in sales tax revenue accounted for $600 million of the total decline.
• GEORGIA‘s state tax collections declined nearly 36 percent in April. The state’s goal to slash budgets by 14 percent will likely lead to over 1,000 job losses and salary cuts for tens of thousands of state employees. This will also result in fewer public health services and less education spending. Lawmakers will pass a budget for the next fiscal year in June.
• Last week HAWAII lawmakers took steps to help close the state’s revenue shortfall and passed multiple bills to allocate federal funding. In response to sharply declining revenue, lawmakers issued bonds and withdrew from the state’s rainy day fund. The Legislature is expected to reconvene in mid-June.
• State agencies in INDIANA have been asked to cut spending by 15 percent to address shortfalls created by the COVID-19 pandemic. Collections for April were 44 percent less than expected and Gov. Eric Holcomb expects a $3 billion drop in tax revenue over the next 14 months.
• KANSAS legislators adjourned their legislative session last week without voting on revisions to the marketplace facilitator bill that would have established a $100,000 revenue threshold for application.
• Lawmakers in KENTUCKY are preparing for a revenue shortfall of more than $450 million, or roughly 4 percent of the state’s general fund, this fiscal year (ending June 30^th).
• As lawmakers brace for a $4.4 billion revenue shortfall, nearly 100 MASSACHUSETTS economists make the case for increasing the state’s personal and corporate income taxes.
• MISSISSIPPI economists predict that tax collections will be $1.2 billion less by mid-2021 than pre-pandemic estimates and that it could take until 2023 for the economy to fully recover.
• NEVADA’s unemployment rate—at 28.2 percent—is now the worst in the country and the worst the state has ever seen.
• NEW JERSEY is anticipating a $10 billion shortfall over the next 13 months alone.
• NEW MEXICO‘s special session will begin June 18 and lawmakers are expecting an estimated budget shortfall next fiscal year of between $1.8 billion and $2.8 billion. This fiscal year could be $368 million to $483 million short of projections.
• OHIO House members passed a bill that would provide temporary amnesty to delinquent businesses and individual taxpayers. Meanwhile, Gov. Mike DeWine reiterated his stance that tax increases are not on the table despite plummeting revenues and rising health expenses.
• OREGON’s revenue shortfall is now estimated to amount to more than $10 billion over six years: $2.7 billion this biennium, $4.4 billion over the following biennium, and $3.3 billion in the 2023-25 budget period.
• Lawmakers in PENNSYLVANIA are in the process of preparing a temporary budget that would maintain current spending levels and raise no additional revenue. Still uncertain about the size of the pending revenue shortfall, lawmakers who were once against legalized cannabis are revisiting it as a new, viable revenue source.
• In RHODE ISLAND, lawmakers are working to close a $235 million revenue shortfall by their June 30^th session deadline. In the absence of additional federal funding, they are preparing a worst-case budget scenario. Lawmakers and advocates alike are pushing back against spending cuts and encouraging steps to raise needed revenue.
• TENNESSEE lawmakers return to the capitol this week to address the state’s $1 billion budget shortfall. House Speaker Cameron Sexton stated that Tennessee can fill the shortfall through the rainy day fund and budget cuts and that tax increases are not on the table.
• VIRGINIA Gov. Ralph Northam signed the budget bill into law, which includes doubling the state tobacco taxes.
• WASHINGTON State lawmakers passed a state budget over the weekend with awareness that they’ll likely need to revisit it, and some are already calling for a special session in June. Meanwhile, Portland, OREGON’s vote to approve a progressive tax to fund homeless services has the attention of observers in Seattle where similar efforts have been underway.
• WYOMING is anticipating an $877 million general fund budget shortfall by June 30, 2022 after declines in sales tax revenue and oil production caused by the coronavirus.

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