State Rundown 3/26: Pandemic’s Health and Fiscal Fallout Continues to Grow

This week’s Rundown brings you the most useful reading and resources about how states are affected by and responding to the COVID-19 pandemic. These include: landing pages for the most up-to-date lists of state policy responses; ITEP’s own materials on state policy options and the federal response bills; insights on how a race-forward approach can improve these efforts at all levels; updates on state fiscal troubles and legislative postponements; and the developing picture of which states and communities could be affected more than others.

Recommended Reading on State Responses to COVID-19 Pandemic

• Leading sources of state policy news and guidance now have helpful landing pages organizing information about the pandemic and its ramifications for states and localities: the National Conference of State Legislatures (NCSL) is cataloging State Action on Coronavirus and updating their information daily; Pew’s Stateline has a similar page of state actions with frequent updates; the National Association of Property Tax Attorneys is tracking state-by-state property tax developments; and the Center on Budget and Policy Priorities (CBPP) is keeping a running roundup of pandemic-related resources.
• ITEP’s Jenice Robinson wrote this week about COVID-19 and the Case for Race-Forward Economic Policy Prescriptions, sizing up some of the proposed responses thus far and how policymakers can advance racial justice rather than continuing a race-blind approach that does just the opposite. Relatedly, The Ohio State University’s Kirwan Institute has a new report on the pandemic and the racial wealth gap.
• NCSL notes that at least 26 states have postponed legislative sessions and The Intercept covers state efforts to carry on legislative business remotely, but some states first must face laws explicitly prohibiting such fixes.
• Congress appears to have settled on the details of its third pandemic-related relief bill. ITEP has analyzed how the direct payments will affect families, but questions and tensions remain regarding how states and localities will be affected. States have policy options, and governors have taken the lead in many ways on making tough public health decisions and helping their residents and businesses, but states face massive revenue shortfalls and cannot go into debt to stimulate their economies like the federal government can. It is already apparent that Congress’s aid to states and localities so far may not be enough, and messages from President Trump that contradict state and local orders and expert advice could add to the fiscal and public-health costs of the pandemic.
• The pandemic will not affect all parts of the country to the same extent or in the same ways. CBPP shows that some states are much less prepared than others to weather an economic downturn using Rainy Day Fund savings. Route Fifty notes that years of anti-tax and anti-government sentiment among Southern policymakers have contributed to inadequate health care systems and a higher-risk population generally. Brookings identifies areas whose economies rely heavily on vulnerable sectors like oil and gas, travel, and hospitality. And the states and localities that have built their revenue systems around plummeting aspects of the economy, like retail sales taxes and tourism-based taxes, are going to face even larger fiscal challenges than most. As noted below, Florida is unfortunately on all of these lists.
• Governing also reports on a few other aspects of the pandemic worth noting: public transportation systems may never be the same; artificial intelligence will likely become even more important and even more quickly than was already expected; and there are lessons available to us in literature ranging from historical novels to science fiction.

State Roundup

• The ALASKA Senate passed a budget early this week. It was rejected by the House and will move to a committee created to come to a compromise. Lawmakers, faced with steep declines in oil and stock prices on top of state needs as a result of COVID-19, are working to determine both the size of the state’s Permanent Fund dividend and how to fund growing revenue needs.
• While ARIZONA extended its tax filing deadlines to July 15, it did not change the deadline for taxpayers to elect to make donations to charities, limiting the ability of donors to take advantage of retroactive state tax credits.
• ARKANSAS Gov. Hutchinson announced that the state expects a $160 million reduction in state revenue through the end of the fiscal year.
• CALIFORNIA’s progressive taxes and disciplined saving have provided the state a $21 billion rainy day fund, which will be a huge help in dealing with the direct and indirect effects of COVID-19. Still, Gov. Gavin Newsom and officials are warning that full funding is unlikely for new or existing proposals. The virus will likely doom multiple ballot initiatives that still need signatures, and is expected to worsen the state’s affordable housing issues.
• As the state budget begins to tighten, COLORADO lawmakers have made plans to convene a committee in the summer to study the taxes the state’s oil and gas industry do and do not pay. Colorado gave the industry $308 million in ad valorem tax credits in 2018, and severance tax collections are projected to fall to $133 million from $242 million in fiscal 2019.
• The DISTRICT OF COLUMBIA has full reserves of $1.43 billion and additional surplus funds at its disposal for coronavirus response. Even so, the Chief Financial Officer has indicated that DC may need to cut $500 million out of its 2020 spending if the crisis goes through June.
• The FLORIDA Department of Revenue notes that the state’s heavy reliance on sales tax leaves them in an especially vulnerable financial position. The new coronavirus has forced shutdowns in tourism and hospitality businesses that account for 20 percent of state sales tax collections. The legislature has scaled back planned tax cuts and boosted the state’s cash reserves for coronavirus response.
• IDAHO Gov. Little vetoed a bill that would have shifted $18 million in sales tax money to the general fund for transportation infrastructure upgrades, citing economic uncertainty due to the pandemic.
• IOWA Gov. Kim Reynolds’s responses to COVID-19 so far include suspending property tax and unemployment insurance tax collections, certain evictions, and some agricultural regulations, as well as allowing electronic public meetings and hearings.
• Both KENTUCKY and RHODE ISLAND remain cash strapped as federal stimulus details are drawn out and state revenue forecasts in these unprecedented times are so difficult to determine.
• MARYLAND state lawmakers passed an emergency bill that allows Gov. Hogan to use $50 million from the state’s rainy day fund for coronavirus response, as well as an extra $100 million if needed. In addition, a $175 million program will provide small businesses with grants, loans, and other relief to pay expenses during the pandemic. However, none of the MD Fair Funding Coalition initiatives passed before the General Assembly adjourned.
• Many state lawmakers, in MASSACHUSETTS and elsewhere, are filing legislation to address the challenges faced by localities and school districts as a result of the pandemic.
• The MISSOURI Budget Project has released an eye-opening report showing that state revenues could drop by $1.8 to $2.8 billion over the next two years if COVID-19 fallout has similar effects to those experienced after 9/11 or in the Great Recession. The report includes helpful guidance on how state policymakers can protect the most vulnerable, stabilize the budget, and invest in the state and its workforce. Missouri has also joined the states delaying income tax filing deadlines to July 15.
• NEBRASKA’s OpenSky Policy Institute has multiple resources available to help policymakers and residents understand the pandemic and steps the state can take now. Their analysis of previous recessionary periods shows state revenues could decline 3.7 to 4.6 percent, possibly warranting a re-calculation of the revenue forecast even though it was recently updated.
• NEVADA’s heavy reliance on sales taxes and tourism is exacerbating the fiscal issues facing its state and local governments. Las Vegas Mayor Carolyn Goodman is arguing that businesses should re-open after only 8-10 days instead of the 30-day shutdown Gov. Steve Sisolak has instituted.
• Budget changes in response to the pandemic in NEW JERSEY include frozen spending for the state’s homestead exemption credit that helps seniors on fixed incomes stay in their homes.
• NEW MEXICO is using $100 million from its Severance Tax Permanent Fund to create a recovery fund that will provide short-term loans to businesses left reeling from the coronavirus outbreak.
• The pressure is on for NEW YORK to raise taxes on wealthy residents to support shared priorities in the face of a major budget shortfall. New York City alone has revised its estimate of the pandemic’s fiscal fallout from $3.2 billion to up to $6 billion over two years.
• NORTH CAROLINA lawmakers are working on a statewide stimulus plan that would tap into the state’s $900 million surplus.
• OHIO Senators—adding layers of precautions—will resume session today with focus on coronavirus-related legislation.
• PENNSYLVANIA Senators convene today, as well, but virtually. Coronavirus relief measures are the topic of debate.
• TENNESSEE lawmakers suspended their session after quickly passing a $39.8 billion budget. The budget includes $150 million for coronavirus response but leaves out a proposal to provide paid family leave to state government employees.
• UTAH could impose a 56 percent tax on vape products after lawmakers agreed to send anti-vaping measures to Gov. Herbert for his approval.
• Even before the pandemic, WEST VIRGINIA was facing multiple years of budget gaps. The West Virginia Center on Budget & Policy has recommendations on how the state can best prepare for further declines in revenue.

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