State Rundown 5/7: State Fiscal Responses to Pandemic Starting to Get Real

State lawmakers are starting to use fiscal policy levers to address the COVID-19 pandemic, but the actions vary greatly and are just a start. Mississippi, for example, is one state still clarifying who has authority to determine how federal aid dollars are spent. Colorado, Georgia, Missouri, and Ohio are among the many states identifying painful funding cuts they will likely make to shared priorities like health care. The Louisiana House and the Minnesota Senate each advanced tax cuts and credits that could dig their budget holes even deeper. Connecticut leaders are looking at one of the more comprehensive packages, which includes funding cuts as well as revenue measures to reduce the severity of those cuts by cancelling the scheduled expiration of prior-year business tax increases.

Major State Tax Proposals and Developments

• Within one day of returning to the capitol, the LOUISIANA House Ways & Means Committee passed a measure that would cut the severance tax charge on oil production from 12.5 percent to 8.5 percent over the next eight years, costing the state approximately $151.4 million over the first five years. At the same time, projections demonstrate that the state’s economic downturn could be worse than after Hurricane Katrina. State lawmakers have also advanced proposals to limit budget growth and spending, which could restrict their ability to fund relief measures. – KAMOLIKA DAS
• A MINNESOTA tax bill that would postpone tax payments due from small businesses, cut tax rates for charitable gambling, and expand several tax credits was approved by a 40-27 vote in the Senate. – MARCO GUZMAN
• CONNECTICUT policymakers had hoped to take a “wait and see” approach to their pandemic-induced revenue shortfall by covering short-term needs with rainy day savings (a $2.8 billion balance they did well to build over recent years), but are shifting to a more proactive stance now that the shortfall is projected to exceed $7 billion over three years. Gov. Ned Lamont is now proposing $400 million in emergency funding cuts and continuing certain business taxes that were scheduled to expire, including a 10 percent surcharge on the state’s most profitable businesses. – DYLAN GRUNDMAN

Recommended Reading on Responses to COVID-19 Pandemic

• As states try to decide on the most responsible course of action going forward, two helpful and regularly updated resources are Governing’s tracking of state restrictions and “re-opening” plans and this tracker of state revenue shortfall projections from the Center on Budget and Policy Priorities.
• With the pandemic affecting different parts of states to different extents, Stateline reports that some cities and counties are asking for more flexibility from state restrictions on their decision-making, from closing businesses to raising progressive tax revenues. Route Fifty notes that some scholars are arguing for a fundamental reimagining of the state-local relationship, while Governing covers an alternative view that that relationship is unlikely to change significantly.
• The differing effects across localities are also on the minds of members of Congress as they debate badly needed aid to states and localities and how to divide that funding by jurisdiction.
• Politico discusses how states facing revenue losses are cutting their Medicaid budgets even as health care needs are on the rise during the pandemic.
• Bloomberg Tax lists ten steps that states should take to end corporate giveaways during the pandemic economic fallout.
• Alabama Arise offers plenty of recommendations for how Alabama could strengthen its tax system and create a stronger, more inclusive economy.
• Jason Bailey from The Kentucky Center for Economic Policy uses lessons from the Great Recession to make the case for Kentucky and other states to receive additional federal aid.
• Listen in or read along as renowned economist Thomas Piketty discusses the pandemic in the context of the global economy and inequality with Democracy Now!’s Amy Goodman.

State Roundup

• The ALABAMA Senate passed a General Fund budget on Tuesday that included modest increases for mental health, public health, and state prisons, but did not include expected state employee pay raises. The Senate also passed a bill that would establish a reserve fund to help avoid future shortfalls. The legislature will hold a special session later this year to distribute the federal CARES Act funds.
• ALASKA cities and boroughs sound the alarm on the restrictions accompanying federal aid. Unable to use those funds to make up for significant lost revenue, local lawmakers weigh raising taxes or making drastic budget cuts.
• The ARKANSAS Legislative Council approved a $55 million “Ready for Business” grant program, funded through the CARES Act, that helps small businesses reopen by covering the cost of safety equipment.
• CALIFORNIA lawmakers have returned to session and will focus first on enacting a place-holder budget by the June 15 deadline. After that baseline is established they will have to turn quickly to changing it to address the projected shortfall of “tens of billions” of dollars per year that should become clearer as the summer progresses. Major policies to raise taxes and cut funding will likely be discussed then, as well as smaller issues like soda taxes and cannabis taxes. Gov. Gavin Newsom has expanded the state’s sales tax exclusion for medical equipment to ensure most types of personal protective equipment are not taxed.
• COLORADO‘s Joint Budget Committee has begun looking for ways to trim the budget as the state copes with the effects of the coronavirus pandemic; one move it is considering is cutting the senior property tax exemption for 2020-21, which would save almost $164 million.
• The DISTRICT OF COLUMBIA Council passed expanded sick leave as part of a second COVID-19 emergency response bill. At the same time,  DC’s paid family leave was set to take effect on July 1st, but some business leaders are pushing for a delay.
• GEORGIA lawmakers called for state agencies to cut up to $3.8 billion from their budgets due to the economic downturn. State agencies have until May 20th to propose budget-cutting measures. In other Georgia news, the Department of Transportation received over $400 million in CARES Act funds for the state’s airports.
• Council members in Hawaii County, HAWAII are considering an additional property tax on second homes where the building plus land is valued at more than $1.5 or $2 million. County officials estimate that the tax of another $1 to $2 for each $1,000 value could raise $6 to $7 million in new revenue.
• In KENTUCKY, a revenue shortfall of up to $500 million is anticipated this fiscal year as a result of the coronavirus pandemic. The state and counties alike are struggling with what this means for their budgets and their ability to fund critical public services.
• As MASSACHUSETTS’ tax revenue and economy declines, lawmakers are working to come to an agreement on new emergency rules for legislating during the coronavirus pandemic. Meanwhile, lawmakers have filed bills to provide stimulus checks to immigrant taxpayers who were left out of the federal legislation.
• MISSISSIPPI legislators passed a bill on Friday giving the legislature control over spending the federal CARES Act funds.
• The MISSOURI House approved about $700 million in funding cuts in the budget it passed this week, which the Senate is considering now in order to meet the May 8 constitutional deadline; it is likely further adjustments will be made to the budget during a special summer session. Meanwhile, the University of Missouri is planning layoffs and pay cuts, lawmakers are also considering a business tax subsidy for health care product manufacturers, and the state lifted some distancing rules this Monday just as it saw its highest single-day tally of new COVID-19 cases.
• NEVADA Gov. Steve Sisolak summarized the state’s troubling budget situation in a wide-ranging interview, pointing out that most state priorities are underfunded already, but that all of them will face budget cuts anyway.
• Lacking an official estimate from the state, NJ.com delved into examples of how bad the revenue shortfalls and service cuts could get in NEW JERSEY.
• NEW YORK City’s Comptroller announced that his office projects a combined revenue shortfall of $7.4 billion for the remainder of 2020 and fiscal year 2021.
• NORTH CAROLINA’s Gov. Roy Cooper signed two coronavirus relief bills this week that direct relief funding to schools, hospitals, local governments and researchers focused on the coronavirus pandemic.
• OHIO Gov. Mike DeWine announced $775 million in state budget cuts this week. The cuts, mostly affecting education and health care, will take place in advance of the state tapping its rainy-day fund. Meanwhile, the state’s Supreme Count is to hear a municipal tax collection dispute.
• OREGON will not delay implementation of its new business tax approved last year to raise revenue for the state’s underfunded school system, but is easing requirements for quarterly payments and penalties for not paying the tax on time.
• PENNSYLVANIA saw a $2.2 billion revenue shortfall in April that may largely be explained by the delayed filing deadline. As a result of the delay, lawmakers are considering a temporary placeholder budget for the next several months. Philadelphia’s mayor has announced spending reductions, service cuts and revenues raisers in response to the city’s revenue needs.
• PUERTO RICO Gov. Wanda Vázquez Garced has extended the temporary sales and use tax exemption for prepared foods until May 25, 2020.
• Gov. Phil Scott of VERMONT laid out a plan to close a nearly $200 million revenue shortfall caused by the coronavirus pandemic in this year’s state budget. The adjustment would use excess Medicaid dollars, additional revenue from alcohol sales and reserve funds to close the gap.
• City Council members in Seattle, WASHINGTON, are renewing their push to tax Amazon as the corporation continues to rake in profits while paying little in taxes.

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