April 29, 2020
April 29, 2020
April has brought relentless showers of troublesome tax and budget news as the COVID-19 pandemic wreaked havoc on communities and the public services and institutions that both support and depend on them. There is hope, however, that these troubles have opened the eyes of policymakers and that May will bring more clarity and strong action in the form of federal fiscal relief as well as home-grown state and local responses.
Major State Tax Proposals and Developments
- States like NEVADA that have built undiversified economies and revenue systems around tourism and consumption are going through something of an identity crisis on top of the public health and economic crises spurred by the COVID-19 pandemic. Sales and gambling taxes make up more than 46 percent of Nevada’s general fund revenue but have plummeted in recent months due to social distancing and dampened tourism, which will undoubtedly continue for some time. This spells major trouble for the state and its cities and counties—as a UNLV professor summarized, “if Las Vegas isn’t crowded, it isn’t working”—yet Las Vegas mayor Carolyn Goodman admits she is unable to imagine a solution that isn’t based on that model. – DYLAN GRUNDMAN
- OREGON lawmakers rose to the occasion this week, approving a $32 million relief package that includes $10 million in aid for undocumented workers who were left out of federal relief bills, stepping up to support all Oregonians even as the pandemic undermines state revenues “on every front.” – DYLAN GRUNDMAN
Recommended Reading on State Responses to COVID-19 Pandemic
- The Center on Budget and Policy Priorities (CBPP) has the most up-to-date tracking of the state revenue gaps emerging as the COVID-19 pandemic reduces revenues and creates new funding needs. The latest numbers indicate 10 percent shortfalls on average in the current fiscal year (through June 30 for most states) and up to 25 percent in the following year. Combining states’ own estimates with economic projections from the Congressional Budget Office, CBPP experts estimate this all adds up to around $650 billion of state budget shortfalls over three years.
- Newsweek also picks up the story of the state and local fiscal outlook, which Bloomberg bluntly summarizes as “bleak” and Governing explains will be the “worst in decades” unless Congress steps in with more (and more flexible) aid. In brighter news, Route Fifty points out that many expect Congress to do just that, and that eligibility and repayment flexibility for local government loans has been expanded.
- Mother Jones describes the numerous obstacles that Black-owned businesses face in obtaining relief loans.
- Pew explains how rural America’s response to the pandemic is undermined by population losses that have been ongoing for decades, and points out that about half of low-income households have already suffered job or wage loss due to the pandemic.
- USA Today warns that state and municipal employees are likely to lose many jobs in coming waves of layoffs as revenue woes take their toll.
- Pew reports on the most common steps states are taking to manage their revenue shortfalls, and the TaxProf Blog summarizes the recommendations of “Project SAFE” (State Action in Fiscal Emergencies), a group of academics and students compiling policy options at the local, state, and federal levels.
- Governing covers the pandemic’s effects on some of the less heralded public entities like transportation authorities, utility districts, and parks districts.
- Cities across CALIFORNIA are predicting a combined $7 billion revenue shortfall over the next two years, calling for state and federal aid to avoid deep cuts to core services. Raising those revenues locally will be difficult. A proposed retail vacancy tax in San Francisco, for example, intended to revitalize neighborhood streets by incentivizing landlords to lease out their empty properties, will likely be delayed in response to the coronavirus pandemic.
- Beginning on May 4, the COLORADO Joint Budget Committee will review recommendations for filling the projected $3 billion budget shortfall. Some options include relying primarily on federal relief, cutting spending, tapping reserve accounts, and declaring a fiscal emergency.
- DELAWARE’s latest estimate is a $785 million two-year revenue shortfall.
- DISTRICT OF COLUMBIA Chief Financial Officer Jeffrey DeWitt announced that DC will be forced to immediately cut $721 million from the current year’s budget as well as $773 million from next year’s budget. Sales tax revenue has dropped by 56%.
- MINNESOTA Republicans have backed off an idea to repeal state taxes on Social Security income as lawmakers put their focus on the expected budget shortfall caused by the coronavirus pandemic.
- Also, MINNESOTA House Minority Leader Kurt Daudt and other Republicans are working to ensure that small businesses will not face any unexpected tax liabilities if they accept relief from the federal government’s emergency loan program, as forgiven debt is taxable under the state tax code. The business community, however, is skeptical since in order to qualify for relief, they must spend the funds on expenses that can already be written off.
- In response to the coronavirus pandemic, MASSACHUSETTS Senate President flags opportunities for the state to repair transportation infrastructure and prioritize education and childcare.
- At a briefing on Monday, MISSISSIPPI Gov. Tate Reeves stated that sales tax receipts were down between 10-15% in April compared to expectations.
- MISSOURI lawmakers will begin debating $700 million of funding cuts to higher education and other priorities as early as next week.
- NEW HAMPSHIRE Gov. Chris Sununu announced the formation of the Governor’s Economic Re-Opening Task Force to provide oversight over disbursing federal CARES Act funds. Last week, a Superior Court judge dismissed a lawsuit filed by Democratic lawmakers that challenged the governor’s power to unilaterally spend the funds. New Hampshire is likely to lose between $153.9 million and $201.9 million in revenue through the end of the fiscal year.
- NEW JERSEY and PENNSYLVANIA, despite being at the forefront of allowing and taxing online gambling, lost $274 million in gaming tax revenues in one month due to decreased in-person gambling.
- NEW YORK’s budget office released a report that details the state’s anticipated deficit as a result of the coronavirus pandemic. Large cuts to schools and local governments are anticipated as the report identifies a $13.3 billion revenue shortfall in this year’s budget along with a $61 billion structural deficit over the next four years.
- NORTH CAROLINA lawmakers have convened this week to pass bills for the use of federal relief funds. Unlike the state’s 2019 budget standoff, bipartisan support is expected.
- The SOUTH CAROLINA Department of Employment and Workforce warned state officials that the state’s fund for paying unemployment benefits is running low, and the state is paying approximately $70 million in unemployment benefits each week. During the last recession, SC increased the unemployment tax on employers but then cut those rates over the last few years.
- UTAH lawmakers will reconsider a bill–originally vetoed by the governor– that would establish a non-refundable tax credit for individuals and businesses that donate to a Special Needs Opportunity Scholarship Program.
- VIRGINIA Gov. Ralph Northam signed a law that would impose an excise tax on peer-to-peer vehicle sharing platforms. The legislation clarifies that vehicle rental platforms – not the vehicle owners – are responsible for collecting and remitting the appropriate rental taxes. Virginia also adopted a law that will allow unregulated gaming machines to continue operations, but the operators must pay a $1,200 per month tax to bring in much-needed revenue.
- Seattle, WASHINGTON, is considering a new tax on large businesses that could help address the “triple emergency” of public health, unemployment, and housing crises facing the area. At the state level, Crosscut lays out the history of state residents’ efforts to create an income tax and how the pandemic adds to the need to do so.
What We’re Reading
- The Institute for Policy Studies released a new report highlighting how billionaire wealth has grown astronomically over the last few decades.
- The TaxProf Blog shares recent research on the religious background behind progressive income taxes in the U.S.
- A new working paper out of the Roosevelt Institute argues for a structural redesign of the financial system to better address issues of financial inclusion and exclusion.
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