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Red, Blue States Alike Need More Federal Support

May 4, 2020 at 12:30 PM

President Trump and Senate Majority Leader Mitch McConnell argue that doing more to help states cope with COVID-19’s severe economic fallout would just “bail out” Democratic-led states, which they portray as fiscally wasteful. But, in reality, unemployment is rising sharply in all states, devastating their income and sales tax revenue. Both “red” and “blue” states will need more fiscal relief to avoid having to make deep budget cuts to meet their balanced-budget requirements, which would hurt families and communities while worsening the recession.

Since the pandemic and economic fallout began, officials in 16 states (including the District of Columbia) have re-estimated revenues for this fiscal year (which ends on June 30 in most states) and officials in 22 states and D.C. have done so for next year — and, in every case, revenues are falling, often by huge amounts. (See table.)

Republican-controlled Arizona and West Virginia project declines for the current fiscal year of 12 and 11 percent, respectively, while Maryland and Illinois — whose legislatures are controlled by Democrats — project declines of 15 and 7 percent. These are all large shortfalls and will require large spending cuts or tax increases, given that the declines have occurred almost entirely within the year’s last quarter, so those states and every other one will have little time to offset them.

TABLE 1
COVID-19 Pandemic Expected to Cause Sharp Revenue Drops in States
State Amount Percent of Pre-COVID-19 projections Source Date and Source
Preliminary Estimated General Fund Revenue Declines in Fiscal Year 2020
Alaska $612 million 11 percent Department of Revenue April 6
Arizona $1.4 billion 12 percent Joint Legislative Budget Committee April 9
Arkansas $353 million 6 percent Department of Finance and Administration March 23
Colorado $451 million 3 percent University of Colorado April 14
Connecticut $942 million 5 percent Consensus Revenue Estimate April 30
Illinois $2.7 billion 7 percent Office of Management and Budget April 15
Kansas $827 million 11 percent Consensus Revenue Estimating Group April 20
Kentucky $447–$624 million 4–5 percent Governor’s Office of Economic Analysis April 29
Maryland $2.8 billion 15 percent Comptroller April 10
Massachusetts $3.8–$4.5 billion 13–15 percent Federal Reserve Bank of Boston April 22
Michigan $1–$3 billion 4–12 percent Treasury, Budget Office, press report March 30
Oklahoma $447 million 7 percent Board of Equalization April 20
South Carolina $507 million 5 percent Board of Economic Advisors April 9
Vermont* $48 million 3 percent Joint Fiscal Office April 28
Washington, D.C. $722 million 9 percent Chief Financial Officer April 24
West Virginia $500 million 11 percent Revenue Secretary April 13
Preliminary Estimated General Fund Revenue Declines in Fiscal Year 2021
Alaska $815 million 15 percent Department of Revenue April 6
Arizona $758 million 6 percent Joint Legislative Budget Committee April 9
Arkansas $206 million 3 percent Department of Finance and Administration April 2
Colorado $2.4 billion 18 percent University of Colorado April 9
Connecticut $2.2 billion 11 percent Consensus Revenue Estimate April 30
Delaware $500 million 11 percent Governor, press report April 15
Hawaii official $319 million 4 percent Council on Revenues March 11
Hawaii projected $800 million–$2 billion 10–25 percent University of Hawaii Economic Council April 3
Illinois $7.4 billion 19 percent Office of Management and Budget April 15
Kansas $446 million 6 percent Consensus Revenue Estimating Group April 20
Kentucky half year* $700 million–$1.1 billion 11–17 percent Governor’s Office of Economic Analysis April 29
Massachusetts $4.2–$7.2 billion 14–23 percent Federal Reserve Bank of Boston April 22
Missouri $1 billion 10 percent Governor, press report April 18
Michigan $1–$4 billion 4–16 percent Treasury and Budget Office, press report March 30
Minnesota* $1.5–$3 billion 5–9 percent State Economist, press report April 7
New Mexico $1.5–$2 billion 20–27 percent Senate Finance Committee, press report March 31
New York* $12 billion 14 percent Division of Budget April 7
Oklahoma $1.4 billion 16 percent Board of Equalization April 20
South Carolina $643 million 6 percent Board of Economic Advisors April 9
Vermont $266 million 17 percent Joint Fiscal Office April 28
Virginia $1–2 billion 4–9 percent Secretary of Finance, press report March 24
Washington, D.C. $774 million 9 percent Chief Financial Officer April 24
Wisconsin $2 billion 10 percent Governor April 15
Preliminary Estimated General Fund Revenue Declines in Fiscal Year 2022
Arizona $805 million 7 percent Joint Legislative Budget Committee April 9
Colorado $4 billion 29 percent University of Colorado April 9
Connecticut $2.3 billion 12 percent Consensus Revenue Estimate April 30
Hawaii $181 million 2 percent Council on Revenues March 11
New York* $16 billion 17 percent Division of Budget April 7
Washington, D.C. $606 million 7 percent Chief Financial Officer April 24
Wyoming* $556 million–$2.8 billion 12–62 percent Legislative Service Office, press report April 10

Notes: Kentucky: Estimate is for the first two quarters of FY21; Minnesota: Estimate for remainder of 2020-21 biennium; Vermont: FY20 includes $167 million in taxes deferred to FY21, which will be credited to FY20 when collected; New York: All funds (General fund plus other state funds); Wyoming: Estimate for 2021-22 biennium.

Shortfalls in the upcoming fiscal year are also large across states controlled by Republicans and Democrats. On Friday, Georgia’s Republican governor and legislative leaders requested that schools and other agencies prepare for 14 percent cuts next year, which starts on July 1. Meanwhile, Democratic-controlled Illinois projects shortfalls of 19 percent next year.

Similarly, initial unemployment claims have exploded in every state as businesses have closed or scaled back, laying off workers. Claims in Georgia, Kentucky, Louisiana, Michigan, and Pennsylvania — all states with Republican-controlled legislatures — have surged particularly quickly, as have claims in Democratic-controlled Hawaii and Nevada.

State budget shortfalls could total $650 billion over three years, we estimate based on new economic projections from the nonpartisan Congressional Budget Office and updated projections from Goldman Sachs. After accounting for federal aid that policymakers have already enacted and state “rainy day” reserve funds, states still face about $510 billion in projected shortfalls. What’s more, this estimate doesn’t reflect the additional shortfalls that local governments, territories, and tribes face.

The wide range of state projections shown in the table reflects both the uncertainty states face and their varying methods of projecting shortfalls as they begin assessing the damage. (Some states are still using only pre-crisis data, for example.) As more states report projections, and as states that already have reported learn more about the damage done, the size and bipartisan nature of this budget crisis will become even clearer.

Given that state fiscal needs transcend party labels, it’s no surprise that the National Governors Association, co-chaired by Maryland’s Republican governor, Larry Hogan, and New York’s Democratic governor, Andrew Cuomo, is pushing strongly for adequate state fiscal relief. The two governors recently called for $500 billion in direct federal aid for states to replace lost revenue, as well as an increase in the federal matching rate for covering state Medicaid costs.


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