State and local governments pinched as pandemic hits tax revenue
Share Now on:
We’ve been seeing how individuals, families and businesses are feeling the economic consequences of the pandemic. Now, there’s growing alarm over the ripple effect that’s hitting local and state governments, as tax revenue craters.
Congress is debating how much support to provide and just how governments could spend any money that comes their way. And the Federal Reserve has taken the unusual step of saying it’s willing to purchase municipal bonds to help provide a backstop.
As far as state budgets go, April was supposed to be a pretty good month.
“About 15% of all income tax revenues in any single fiscal year is collected in the month of April,” said Lucy Dadayan, a senior research associate at the Urban Institute.
But 35 states plus Washington, D.C., extended income-tax deadlines to July 15, so a lot of that expected revenue isn’t coming for a while.
Richard McGahey, an economist at the New School, said that for many states, “that means they don’t know how much tax revenue they’ve got coming in till after their fiscal year starts, making it even harder for them to forecast revenues.”
Even harder because other revenue numbers, like sales taxes, are in flux as well. Tim Ryan, a municipal bond portfolio manager at investment firm Nuveen, said some states can just take the hit.
“Certain states have more rainy-day funds than others,” Ryan said. “But I think many will probably look to the bond markets to at least provide some stopgap financing.”
The municipal bond market is where towns, cities, states and transportation systems go for cash in a pinch. Usually, investors love muni bonds, and the Fed stays on the sidelines. Now, the central bank says it will spend as much as $500 billion to stabilize the market.
But not all states are jumping at the opportunity.
For example, in New Mexico, Deputy Treasurer Sam Collins knows revenue is going to take a hit.
“We estimate it’s going to be something in the range of $300 million to $400 million,” Collins said. “That will be delayed from March, April, May and June to July.”
But he still views the Fed’s program as a last resort. For now, he thinks the losses are something the state can absorb, although he says the full picture won’t be clear until May.
COVID-19 Economy FAQs
Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?
This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.
Could waiving patents increase the global supply of COVID-19 vaccines?
India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.
Can businesses deny you entry if you don’t have a vaccine passport?
As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.
Donate now to get almost any thank-you gift.