Key Highlights

  • State coffers empty due to COVID lockdowns, staggering unemployment and collapsed sales taxes
  • State and local governments not included in latest COVID aid package
  • State could be forced to cut services and/or raise taxes on sales and businesses

According to the latest projections (July 7) from the Center on Budget and Policy Priorities (CBPP) that were based on projections from the Congressional Budget Office and the Federal Reserve, state budget shortfalls from the COVID-19 economic fallout are expected to hit a cumulative -$555B over state fiscal years 2020-2022. (2020 = -$110B; 2021 = $290B; 2020 = -$155B) This cumulative figure of $555B is for state shortfalls ONLY and does NOT include any additional shortfalls that local and tribal government and the US territories face.

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Already, in just four months, state and local governments have furloughed or laid off some 1.5M workers, twice as many as in ALL of the Great Recession, due to budget shortfalls. Who’s to say how many more state and local workers will be furloughed or laid off during this recent surge of COVID infections so this latest cumulative estimate of -$555B over 2020-2022 may be too optimistic?

State and local governments were not even mentioned as aid recipients of the latest COVID $484B relief package passed and signed into law the week of July 7. So where are states and localities going to cut corners and raise revenues as the federal government continues to hear no evil, see no evil and speak no evil regarding relief aid to these entities?

  • Corporate income taxes – a slice of the income you generate as you work from home
  • Online purchases – in 2018, the Supreme Court said okay to states requiring online sellers/merchants to collect and remit sales taxes – watch this
  • Excise and sales taxes – digital services, now untaxed, may become taxed, according to the Tax Policy Center, and rates on sales taxes could rise
  • Property taxes – towns and cities handle and rely on property taxes; they could increase, according to the Tax Foundation
  • Gross receipt taxes – there no reliability on profitability to impose gross receipts taxes so more states in addition to Delaware, Nevada, Ohio, Texas and Washington may choose this option

Because state governments must by law operate with balanced budgets, unlike the federal government, look to states, counties, cities, and tribal governments as well as US territories to impose a combination of reduced services and increased taxes.

According to Nick Johnson, senior vice president for state fiscal policy at the Center for Budget and Policy Priorities, “We’re hopeful for federal aid, but if it doesn’t come through or it isn’t up to the magnitude of the gaps that emerge, then states will have to balance their budgets.”

 

Thanks to the Center for Budget and Policy Priorities and CNBC.

Also read: Residents Moving from Too Expensive California, Apple Steps Up to the Plate with Google and Facebook to Confront CA Housing Crisis, Who Is Leaving California?