State Rundown 4/9: Pandemic’s Fiscal Effects Slowly Coming into Focus

The COVID-19 pandemic continued this week to wreak havoc on lives and communities around the world. The fiscal fallout of the virus in the states is growing as well, and beginning this week to come into sharper focus. This week’s Rundown brings together what we know of that slowly clarifying picture and how states are responding so far.

Major State Tax Proposals and Developments

• The DISTRICT OF COLUMBIA approved an emergency bill that provides additional relief to businesses and residents and allows borrowing of $500 million to address cash flow issues, but  excludes the extension of unemployment benefits to undocumented workers. Even with these relief measures, DC will have to cut $600 million from the current year’s $9 billion budget. Luckily, DC has a fully-funded $1.43 billion rainy day fund, but it is unclear whether or not DC officials will tap into these funds. – KAMOLIKA DAS
• FLORIDA Gov. Ron DeSantis issued an executive order that suspended the assessment and collection of state taxes on federally-backed small business loans established by the CARES Act. The Governor also signed a $37 million tax cut bill (pared down from an initial $120 million proposal) that includes a sales tax holiday for back-to-school and disaster preparedness. Lastly, DeSantis may still move ahead with issuing a half-a-billion-dollar corporate tax refund for Florida’s largest one percent of businesses, despite pushback from lawmakers. – KAMOLIKA DAS
• Efforts to improve tax fairness in WASHINGTON State were dealt a blow by the state Supreme Court, which declined to rule on a case involving Seattle’s attempt to create a graduated income tax, leaving in place a lower ruling that barred the effort. Proponents point out, however, that the city can still enact a flat-rate income tax with some progressive provisions to make a small dent in the most regressive state and local tax system in the nation. The Seattle City Council is also advancing a proposal to implement a new tax on large corporations. At the state level, Gov. Jay Inslee has cut $235 million from the current budget as an initial response to pandemic-induced revenue troubles. – DYLAN GRUNDMAN

Recommended Reading on State Responses to COVID-19 Pandemic

• Resources from ITEP, Pew, the Center on Budget and Policy Priorities, Route Fifty, and Governing show that with plummeting sales taxes leading the way, state and local revenues are sharply down, opening up massive budget shortfalls, the size and timing of which are just beginning to come into focus.
• Route Fifty also reports that cities and counties are laying off workers by the thousands, partly due to small and mid-sized cities being left out of federal funding responses so far, and Governing shows how state preemption efforts are worsening these effects by constraining localities’ options.
• Among the vital services that are suffering right now, Axios reports on the pandemic’s devastating effects on public transit systems, and Stateline covers the effects on homeless shelters and addiction treatment, but Route Fifty has suggestions for keeping parks open.
• Governing offers advice for how the next round of federal aid can help mitigate state and local job losses.
• Axios and Route Fifty both report on the harsher impacts of the COVID-19 pandemic on Black and brown people and communities, and Jenice Robinson of ITEP explains that such disparate impacts reflect long-standing policy failures that must be addressed, not a short-term crisis after which we can return to normal.

State Roundup

• Cities in ALABAMA are expecting up to a 40 percent loss in sales tax alone, but the full economic impact of the pandemic is still unclear. The League of Municipalities states that gas, occupational and lodging taxes are also down across the state.
• ALASKA’s Department of Revenue forecasts that even if the state were to provide no Permanent Fund dividend to residents next year, they will face a deficit of several hundred million dollars. Lawmakers are expected to weigh tax increases, cuts in state spending, cost shifting to cities and boroughs, and/or additional spending from the state’s Permanent Fund’s earnings reserve.
• CALIFORNIA advocates for a “split roll” property tax initiative to roll back property tax limits created in 1978 under the now-notorious Proposition 13 got their legwork done before the state shut down and were able to submit more than enough signatures to put the measure on the ballot. Meanwhile, Gov. Gavin Newsom is abandoning his original proposed budget due to a “radically changed” landscape.
• CONNECTICUT is estimating its pandemic-related revenue shortfall could be $1.4 billion or higher next year. In-state experts Connecticut Voices for Children demonstrate in a recent report how the state can use savings and reform its tax code to better weather the crisis.
• With a predicted decline in revenues ranging from 10- 25 percent in HAWAII, lawmakers could be faced with a shortfall of $1 billion next year. State departments are developing plans for 10 percent budget cuts and have frozen all hiring. Proposals for an increased minimum wage, refundable Earned Income Tax Credit and expanded access to preschool—to name a few—continue to be discussed.
• INDIANA Gov. Eric Holcomb signed an executive order that exempts manufacturers and other organizations from use tax for medicine or other medical supplies donated for the use of combating COVID-19 in Indiana.
• IOWA Gov. Kim Reynolds’s harmful proposal to use a regressive sales tax increase for regressive income tax cuts is “on hold.”
• KANSAS Gov. Laura Kelly issued an executive order to more than double the amount of unemployment benefits for unemployed Kansans; this translates into an extra $600 in weekly benefits.
• The KENTUCKY legislature passed a one-year austerity budget that keeps government funded at current levels until mid-2021 and provides the governor flexibility to cut spending as necessary. Lawmakers have also approved a revenue bill that contains tax breaks for agriculture, alcohol and coal industries. The bill also includes a tax on vaping products.
• MARYLAND Gov. Larry Hogan announced that the state will face “massive budget problems” in the coming months. Maryland has already spent $1-2 billion on the coronavirus crisis, compared to their $1.3 billion rainy day fund.
• In MASSACHUSETTS, lawmakers convened a “virtual round table” to discuss the coronavirus pandemic’s impact on the state. Estimates show that the Commonwealth could see up to $2 billion in tax revenue shortfalls for the coming fiscal year.
• MISSISSIPPI government officials have expressed concerns that the federal funds from the CARES Act will not be able to substantially offset the state’s revenue shortfalls, especially since there’s debate around what qualifies as COVID-19 related expenses.
• The MISSOURI legislature returned to its session this week, but will not consider a bill to collect sales taxes on online transactions, leaving Missouri and Florida as the only two states still failing to do so.
• NEBRASKA thought leaders at OpenSky Policy Institute have updated materials on the likely scale of the pandemic-induced budget shortfall, the case for implementing voter-approved Medicaid expansion as quickly as possible, and how the state can protect small businesses and nonprofits. Meanwhile, lawmakers’ efforts to reach consensus on school finance and property tax reforms—already a long-shot—are even more unlikely to succeed this year as the revenues that would have funded increased school aid fall.
• Newly introduced legislation in NEW YORK would exempt the state’s health care workers and first responders from paying state income tax. The state faces a $10 to $15 billion revenue shortfall.
• NORTH CAROLINA lawmakers are busy preparing for their upcoming session starting April 24, as working groups dig into the details of COVID-19-related legislation. Preliminary estimates show a $1.5 to $2.5 billion revenue loss over the next two years. The impact of the economic damage is becoming more evident over time. Budget writers expect to have a clearer picture of the impact on state finances in the coming weeks.
• In OHIO, preliminary tax receipts for March came in 10.5 percent lower than estimated. Lawmakers are considering tapping the state’s rainy-day fund and are weighing borrowing options. Gov. Mike DeWine has already announced a hiring freeze and has directed states agencies to identify cuts to up 20 percent.
• OKLAHOMA Gov. Kevin Stitt announced that the state expects a revenue failure of $416 million for the rest of fiscal year 2020 due to the coronavirus pandemic.
• OKLAHOMA announced a record-high $7.8 million in revenues from tax collected from the medical marijuana industry in March. The state imposes a 7 percent tax—in addition to state or local sales taxes—on medical marijuana sales.
• The OKLAHOMA Policy Institute laid out two revenue scenarios that the state may face as it copes with the effects of the coronavirus pandemic and recommended that lawmakers utilize the rainy day fund to help make up for the expected revenue failure.
• PENNSYLVANIA saw a 6.2 percent drop in tax revenue in March with an increase in cigarette and alcohol taxes. But that’s only the beginning of the damage; the state estimates up to a $4 billion revenue shortfall as a result of the coronavirus pandemic. The Senate has approved emergency measures for local governments, ensuring that they can continue operations.
• RHODE ISLAND lawmakers have taken immediate steps to ensure that they have funds to cover their expenses. They secured a $150 million line of credit with authority to borrow up to $300 million to keep state government operating over the next few months.
• TENNESSEE Gov. Bill Lee signed a measure that requires marketplace facilitators with more than $500,000 of annual sales such as Amazon and eBay to collect and remit taxes on remote sales. Over 30 states have passed marketplace facilitator laws since the Supreme Court’s South Dakota v. Wayfair ruling. The law is expected to bring in much-needed revenue, given expected revenue shortfalls and additional spending for coronavirus response.
• The Sycamore Institute explained the impact of the pandemic on TENNESSEE’s economy and outlined recommendations to halt the spread of coronavirus and reduce its short- and long-term economic impacts.
• TEXAS Comptroller Glenn Hegar estimates that their two-year budget will have to be adjusted by “several billion dollars” due to high demand for government services and revenue shortfalls. He states that while the next legislative session is not until January, state agencies can slow spending without legislative action.
• The UTAH State Tax Commission announced that changes to the collection of state sales tax will not come until the state legislature meets for a special session, despite calls from small business owners to delay sales tax collection.
• Lawmakers in VERMONT anticipate having to start their budgeting process for next year’s budget from scratch, given the extent of damage of the coronavirus pandemic on state finances. The crisis has already cost the state $389 million this year.
• In a letter sent to the WISCONSIN Economic Development Corp., the Foxconn Technology Group said that the company has hired enough workers in 2019 to qualify for state tax credits; the company failed to qualify the year before.

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