Bloomberg Businessweek - USA (2020-05-04)

◼ POLITICS Bloomberg Businessweek May 4, 2020

32

THEBOTTOMLINE Asunemploymentbitesintoincometaxes,

andsalestaxesdryupforlackofconsumerdemand,statesacross

theU.S.faceyawningbudgetgaps.

ofworkinjustfiveweeks,incometaxcollections

are tanking, and sales taxes have evaporated after

stores and restaurants shuttered. Most states receive

a majorityoftheirrevenuefromthosetwosources.

Hawaii,a bluestate,andFloridaandNevada,

bothswingstates,relyheavilyonsalestaxrevenue

generated by tourists who travel and spend money

in hotels and restaurants and, in Nevada’s case, casi-

nos. Since that tourism has been all but eliminated,

the states are preparing for a significant falloff in

funds, which will be realized when April receipts

are collected toward the end of May. Florida’s chief

financial officer recently told a task force meeting,

“We’re trying to find 127 million tourists to have the

confidence to come back and patronize our state,”

the Orlando Sentinel reported. “This is a one-of-a-

kind enemy we’ve never seen before.”

Business activity around the country is unlikely

to return to normal immediately after stay-at-

home orders are lifted, because many Americans

may still be afraid to venture out. According to

a Citigroup Inc. research note, sales taxes “are

expected to fall much more this time” compared

with previous recessions.

“The speed at which the economy has declined

is like nothing that states have seen, certainly in

decades,” says Michael Leachman, senior director

of state fiscal research at the Center on Budget and

Policy Priorities, a Washington, D.C., think tank.

“It is unprecedented.” Most states are required to

balance their budgets, meaning that if there’s a gap

between the revenue coming in and the expenses

the state spends on services, it would have to either

cut funding, raise taxes, or both.

Meanwhile, millions of Americans are filing for

unemployment, which means the income taxes

they’d pay to states are vanishing. In Hawaii as

well as swing-voting Michigan and McConnell’s

deep-red Kentucky, at least 24% of the labor force

became unemployed over the five weeks ended

on April 18, according to U.S. Department of Labor

data analyzed by Bloomberg.

Moody’s Analytics projects a fiscal shock to

states of $158 billion to $203 billion through the

end of the fiscal year ending in June 2021, result-

ing in almost half of states having to fill a budget

gap of at least 10%. (Their ability to weather the

impact will depend in part on the amount in their

reserves.) Under Moody’s most severe scenario,

Louisiana, North Dakota, and West Virginia—all

red states—are projected to lose more than 39%

of their revenue. Another Republican stronghold,

Alaska, is poised to see the largest loss, poten-

tially as much as 79.6% of its general fund. That’s

because the state gets much of its revenue from

theoilandgasindustry,andpriceshavecrashed.

TheNationalGovernorsAssociation,chaired

byMarylandRepublicanGovernorLarryHogan,

hascalledonCongresstoallocateanadditional

$500billioninfundingforstateshortfalls.Although

theCoronavirusAid,Relief,andEconomicSecurity

Actprovides$150billionforstatesandlocalities,

thosefundsmustbespentonvirusreliefonly.

TheFederalReserveannouncedit willstartbuy-

ingshort-termmunicipaldebtusingitsemergency

lendingprograms,whichhashelpedthemarket

recoverfromthehavocwreakedbythevirus.

TheBrookingsInstitutionestimatesthatatleast

$500billion needs to be infused into state and local

governments for them to continue providing ser-

vices such as education, public safety, and health

care. Amy Liu, director of the metropolitan pol-

icy program at Brookings, says that without federal

aid it will be even more difficult for the country to

recover. The aid, she says, “is making sure these

essential services continue as we try to bring back

the economy.” �Danielle Moran

States’ Pain Spans the Political Divide

States classified by percentage of the workforce that’s become unemployed over the last four

reportedweeksandvulnerabilitytofiscalshock,accordingtoMoody’sbaselinescenario

“The speed

at which the

economy has

declined is like

nothing that

states have

seen, certainly

in decades”

Tenn.

Colo.

Miss.

S.C.

West

Virginia

Wyoming

Indiana

California

N.C.

Iowa

Wisc.

Maryland

Oregon

NewMexico

Louisiana

Alaska

North

Dakota

NewYork

Connecticut Te x a s Florida

Idaho

Maine

Ohio

New

Hampshire

South

Dakota

Utah

Arizona

Alabama

Delaware

Minnesota

Mass.

Missouri

Oklahoma

NewJersey

Georgia Washington Kentucky

Rhode

Island

Hawaii

20%moreorPennsylvania Nevada Michigan

11%

to

13%

17%

to

19%

8%

to

10%

14%

to

16%

7% or

less

12%orless 13%to16% 17%to20% 21%to24% 25%to28%29%ormore

Leastfiscalshock,asshareofGDP Most

Most

Least job loss

◼ States Trump won in 2016 ◼ States Clinton won

DATA: MOODY’S, BUREAU OF LABOR STATISTICS