The New York Times gave well-deserved pride of place (page 1 right had column in today's print edition) to Mary William Walsh's excellent piece reviewing the status of state government tax and fee revenues during the first year of the Coviod-19 pandemic. The article's terrific graphic produced from data gathered by Dr. Lucy Dadayan of the Urban Institute-Brookings Tax Policy Center tells the tale just as well as the headline "Virus Did Not Bring Financial Rout that Many States Feared."
It's particularly interesting to see that several of the most severe state government tax and fee revenue shortfalls for the first year of the pandemic have accrued in the politically red states of Alaska, Florida, North Dakota and Texas, not the politically blue states of the Northeast and Midwest that certain Representatives, Senators and Ex-Presidents are so fond of accusing of mismanagement.
My own home state of New Jersey - with its history of badly managed public employee pension funding - is now showing a tax and fee revenue shortfall of 2.4% and my Governor Phil Murphy has proposed a budget for the coming FY 2021-2022 showing the first full annual funding of that pension system obligation since 1996 (!)and a relatively healthy surplus of $2.2 Billion. Of course the state did borrow about $4 billion last fall on an emergency basis and imposed a millionaires tax among other actions that made this relatively good-news budget proposal possible.
Still and all, the muni bond geek in me still wonders why that bond issue was structured with no call provisions which could have permitted the early retirement of this debt if and whenever that could afford to do it. But the debt shouldered by the state in that bond issue is cheaper than it's ever likely to be for the foreseeable future, so maybe the Treasurer can salt away the proceeds for future voter-authorized capital project use and avoid having to pay the higher interest rates like to be prevailing at those future points in time.
Ms. Walsh's piece points out that one of the principal reasons state revenues are doing better than previously projected by just about everybody is the counter-recessionary effect of previously enacted federal stimulus on their underlying economies, particularly the vast amounts flowing to individual consumers via regular and extended Unemployment Compensation payments and the PPP program payments to small businesses as well as direct payments by the Treasury to individuals.
The other very important message to policy-makers which Ms. Walsh included in her article is 'don't forget the localities' quoting Dr. Dadayan: “We know that local governments are doing far worse than the states.” The National League of Cities' latest survey data makes clear how important it is for us all to keep focusing on localities' fiscal distress:
- 90% of the cities surveyed had revenue decreases with the average reported decrease being a whopping 21%, while the average expenditures driven largely by pandemic responses increased by 17%, suggesting to me that the average budget gap of those surveyed reporting that they are experiencing revenue shortfalls is a whopping 38%.
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