Just Taxes Blog by ITEP

State Rundown 4/3: States Welcome Federal Aid, Seek Further Solutions

April 3, 2020

States and families got good news this week as Congress came together to pass major aid to help during the COVID-19 coronavirus pandemic. But that bright spot came amid an onslaught of very difficult news about the public health crisis and the economic and fiscal fallout accompanying it. This week’s Rundown brings you the latest on these developments and state and local responses to them.

Major State Tax Proposals and Developments

  •  Next week, the DISTRICT OF COLUMBIA will consider a sweeping emergency bill to address issues related to the pandemic. Provisions include creating a mechanism to allow undocumented workers to access unemployment benefits, letting small business owners claim a tax credit for a percent of rent or property taxes, and allowing the Chief Financial Officer to borrow $300 million to ease “cash flow” issues. – KAMOLIKA DAS
  • NEW JERSEY is losing millions in tax revenue during the pandemic, including from Atlantic City casinos. In addition to freezing $920 million of spending, the state is taking an unprecedented step of pushing back not only its tax filing deadline but its entire fiscal year, now set to end September 30 instead of the usual June 30. New Jersy Policy Perspective shows how dire the need for additional revenue in the Garden State is, and Gov. Phil Murphy is rightfully standing by his call to create a true millionaires tax to help address the need. In brighter news, the state will make its planned $1 billion pension payment on time. – DYLAN GRUNDMAN
  • A few days past the state’s March 31st deadline, NEW YORK lawmakers have come to a budget agreement. Short-term borrowing and reserves will likely bridge the gap where lower than anticipated revenues fall short. Revenue raisers, including new taxes on the wealthy and recreational cannabis, did not make the final proposal despite the immense revenue shortfall facing the state. – AIDAN DAVIS
  • WISCONSIN Gov. Tony Evers introduced a second round of proposals to curb the effects the coronavirus outbreak is having on residents and businesses. The bill would increase the state Earned Income Tax Credit (EITC) for filers with one dependent from 4 percent of the federal credit to 11 percent and from 11 to 14 percent for those with two or more dependents, in addition to implementing several property tax relief measures. – MARCO GUZMAN

Recommended Reading on State Responses to COVID-19 Pandemic

  •  The magnitude of the COVID-19 pandemic’s effects on state funding for vital shared priorities is slowly and ominously coming into focus, as tracked by the Center on Budget and Policy Priorities and reported by Stateline. Route Fifty covers how state moves to delay tax filing deadlines are adding to current-year shortfalls. And our own Meg Wiehe and Carl Davis explain how this could be the steepest sales tax decline ever.
  • The virus is also wreaking havoc on local budgets, as mentioned in many of the State Roundup stories below. Cities and counties are cutting services and jobs and scrounging for health care supplies needed to fight the virus. Schools are struggling to ensure that special-needs students continue to get crucial services. And libraries are creatively rethinking how they can serve their communities.
  • Some help for states and localities is on the way in the form of recently approved federal aid, but is very limited in size and scope, so much more will be needed to help stabilize state and local budgets as revenue plummet and needs rise. Governing argues that Congress should also open up the Federal Financing Bank to extend credit to states and large municipalities.
  • Policymaking and governing themselves are changing rapidly as well. State lawmakers are attempting to meet and vote while maintaining necessary distancing, and local officials are taking similar steps. State and local employees are also transitioning to as much remote work as possible. Efforts to change laws through ballot initiative are likely to suffer greatly in the near future as advocates are unable to gather signatures. And both Axios and Stateline report on state efforts and barriers around voting by mail for upcoming elections.
  • ITEP’s Aidan Davis delves into pragmatic ways state lawmakers can improve the performance of state EITCs during the pandemic, such as allowing recipients to repeat their 2019 amount in 2020, temporarily modifying the credit structure to eliminate the “phase-in,” and/or temporarily allowing unemployment benefits to count as “earned income,” all of which would help ensure the credit reaches working families in need even if they are not able to work as much during the pandemic.
  • Stateline reports that states and cities are suspending plastic bag bans, for example in CONNECTICUT.
  • MAINE Center for Economic Policy released a report on coronavirus and the state’s economy. The report’s author says that while a new recession is unavoidable the extent of the recession’s harm to families and small businesses is up to policymakers.
  • NEBRASKA’s OpenSky Policy Institute continues to be a leading resource for lawmakers and residents on pandemic response options, including recent briefs on Unemployment Insurance and paid leave.
  • NEW JERSEY Policy Perspective wrote a policy brief outlining tax and budget policies to pursue and avoid during the coronavirus outbreak.
  • The Economic Progress Institute published a report with steps focusing on protecting RHODE ISLANDers and the state’s economy during the coronavirus pandemic.

State Roundup

  •  Over the weekend ALASKA lawmakers passed a budget that includes $1 billion in spending from the state’s Constitutional Budget Reserve, virtually draining its savings. Lawmakers are expected to reconvene before the end of the year. Upcoming discussions will likely include changes to the Permanent Fund Dividend (PFD) formula, further budget cuts, and/or the implementation of new revenues.
  • After last week’s special session, ARKANSAS Gov. Asa Hutchinson signed legislation to create a $173 million “COVID-19 Rainy Day Fund” to respond to the coronavirus outbreak and offset revenue reductions. The special session was called in response to a projected $353 million shortfall.
  • Estimates of the pandemic’s impact on city budgets in CALIFORNIA are coming in, with San Francisco expecting an increase of around $700 million to $1.3 billion to the $420 million shortfall it was already expecting, and San Diego projecting a $109 million loss just in the current fiscal year that ends June 30. Smaller businesses in the state have been granted a 90-day extension on tax payments.
  • A task force commissioned by the governor of COLORADO to study tax reform options will continue its work remotely despite the legislature being on hiatus.
  • CONNECTICUT’s comptroller estimates that the state will face at least a $170 million general fund revenue shortfall due to the coronavirus pandemic. And that could be just the beginning of a more serious shortfall. Lawmakers continue to work remotely.
  • GEORGIA Gov. Brian Kemp signed a revised budget which cut $159 million amid slowing revenues and dedicated $100 million from savings for coronavirus response. However, there are concerns among legislators that there could be further revisions due to tanking revenues.
  • INDIANA expects April tax collections to be down 50 percent due to the filing deadline being extended to July.
  • The KANSAS Department of Revenue reported a 1.6 percent shortfall in tax collections last month, but state officials expect job losses and a decrease in economic activity to have a larger impact in the coming months.
  • KENTUCKY lawmakers passed an emergency bill in response to the coronavirus pandemic. Legislators are now working on a one-year (vs. two-year) state budget using the most pessimistic revenue forecast conducted by state officials in December. The assumption is that state tax revenue will bring in an estimated $115 million less than forecasted for fiscal year 2021.
  • LOUISIANA‘s state income forecasting panel is scheduled to meet April 8th. Economists for the Edwards administration and legislature fear that the nosedive in oil prices could lead to a $360 million loss in revenue.
  • MARYLAND lawmakers approved HB 732, which would expand the state’s sales tax to sales of digital products. The tax rate varies from 2.5% to 10% depending on the taxpayer’s global annual gross revenues. Gov. Larry Hogan has not yet signed the bill into law.
  • A recent revenue shortfall projection in MASSACHUSETTS predicts that the state will likely face a $1.8 to $3 billion drop-off in revenues before the end of fiscal year 2021 due to the coronavirus pandemic. Uncertainty remains.
  • The MISSISSIPPI House passed the Marketplace Facilitator Act, which would require online retailers such as Amazon and Walmart to collect a 7 percent tax on items they sell for other companies. The Senate Finance Committee may still consider the bill after the legislature reconvenes. That said, the legislative session remains on hold indefinitely.
  • MISSOURI lawmakers have two bills moving through the legislature that would finally catch the state’s sales tax up to most others and bring in much-needed revenue by including online purchases, but both are on pause right now with the session on hold.
  • According to an updated report, NEW YORK counties outside of the city could lose a cumulative $2 billion in sales tax revenue due to the coronavirus pandemic. The state is estimating $10 to $15 billion in lost revenue.
  • The chairman of NEW MEXICO‘s Senate Finance Committee said that the effects of the coronavirus pandemic and low oil prices could cause the state to miss its revenue projections by $1.5 to $2 billion.
  • Social distancing measures in OREGON appear to be stemming the spread of the virus, a welcome development as revenues around the state decline and debate continues over whether to delay implementation of a major new business tax passed last year to help the state’s already underfunded schools, which could see even worse cuts without the new tax.
  • PENNSYLVANIA revenue was down 6.2 percent in March, bringing in $294.6 million less than anticipated. That shortfall was only partially COVID-19 related; state analysts expect a greater impact on state revenues in the coming months.
  • Progressive organizations across RHODE ISLAND pulled together to push lawmakers toward immediate action to protect the most vulnerable Rhode Islanders left behind by the federal stimulus. Funding asks include that the state maintain current revenue streams and institute a new income tax on the state’s wealthiest.
  • SOUTH CAROLINA lawmakers approved a $10 billion budget in early March, but a board of economic advisors will meet virtually next week to discuss amending the budget, which was created with the expectation of having a $2 billion surplus.
  • SOUTH DAKOTA lawmakers have low expectations for sales tax revenue from the state’s tourism industry, as people continue to take precautions during the coronavirus outbreak. The industry makes up more than 5 percent of the state’s gross domestic product and brought in over $308 million in state and local tax revenue.
  • As with Louisiana, the nosedive in oil and gas prices will negatively impact TEXAS‘s budget. In 2019, 10% of the state’s tax revenue was from oil and gas. State government officials may redirect $3 billion in rainy day fund money to cover the budget shortfall, but they are also considering options for budget cuts.
  • UTAH Gov. Gary Herbert cited the current economic climate for vetoing several bills that would have created or expanded various tax credits and exemptions. The governor also signed a bill imposing a 56 percent tax on the wholesale price of electronic cigarettes.
  • While VERMONT state tax revenue figures for February were on target, the state expects a decrease in the coming months.
  • Seattle, WASHINGTON, is using revenues from its recently enacted soda tax to provide emergency grocery vouchers to thousands of families.
  • WYOMING Gov. Mark Gordon approved a bill that would cut the severance tax rate from 6 percent to 4 percent when oil or gas prices fall below a certain threshold for one year. Additionally, the state Oil and Gas Conservation Commission announced that it will not collect conservation tax for six months due to the effect the coronavirus is having on the market.

What We’re Reading

  • It starts with a “C” and ends with an “S” but it’s not coronavirus…Census Day was this week and Stateline reports on what the Census results could mean for state budgets.
  • A study out of North Carolina State University shows that financial incentives like property tax abatements and investment credits offered by state governments “reduce the overall fiscal health of a government,” whereas job-creation tax credits proved more effective.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.


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