The severity of the revenue drop so far has been lessened by the $2.2 trillion stimulus plan enacted in March that provided payroll support to small businesses, direct payments to families, and larger unemployment checks to millions of out of work Americans. The rescue package also gave the Federal Reserve the ability to intervene in the municipal market if needed.
But unique elements of the pandemic have also played a role. Income-tax payments haven’t dropped as much as anticipated because job losses have disproportionately affected lower-paid workers in the restaurant, retail and tourism sector. Higher paid white-collar workers who could work from home have kept earning and spending, unlike during the recession set off by the housing market collapse, when many high-paid finance and real estate workers lost jobs.
“This is a very weird recession,” said Jeffrey Dorfman, Georgia’s fiscal economist. “Nobody has data that fits this. Nobody’s statistical model can predict what’s going on.”
Lost Revenue
Still, the impact has been significant. The Urban Institute estimates that states will see a $125 billion revenue shortfall in fiscal 2021, with those particularly hard hit by the pandemic especially affected. In April, the National Governors Association called on Congress to provide at least $500 billion to offset their lost revenue.
Despite the positive sales-tax bump, New Jersey’s income-tax revenue fell 5.3% in August from a year earlier. New York’s sales-tax revenue declined $1.3 billion, or 20%, for the first five months of the fiscal year, as a prolonged lockdown dashed tourism and shuttered restaurants and shops. Income tax withheld from paychecks has declined just 1.2% compared with the prior year, but estimated payments on capital gains and from small business owners and partnerships are lower by $1.3 billion, or 14%.
New York says it will have to cut $8 billion in aid to cities and schools without more federal help. New York City may be forced to cut 22,000 jobs, Mayor Bill de Blasio said.
Not everywhere is the outlook so dire. In Idaho, a rural state far less affected by the pandemic, the government’s revenue exceeded forecasts during July and August, leaving it expecting that its surplus could grow from $186 million at the start of the fiscal year to over $500 million by next June, said Alex Adams, administrator for the Idaho Division of Financial Management.
“We feel optimistic,” he said. “But cautiously optimistic.”
This article was provided by Bloomberg News.