REPORT: January 6 Member Meeting

State Budgets and the Economic Outlook

Joseph R. Crosby

Chairman and CEO
MultiState

The Senate Presidents’ Forum met for an online meeting on January 6, 2021, to focus on the economic outlook and the impacts of COVID-19 on state budgets. Joe Crosby, Chairman and CEO of the consulting firm MultiState, provided insights on the varying impacts of the pandemic on state economies. He noted that each new national estimate of revenue impacts from the COVID-19 economic shutdown has improved over prior predictions; however, states have been affected differently based on how their taxes are structured and which commodities they produce.

The current recession has greater variability than typical recessions, Mr. Crosby pointed out, because multiple forces are driving it. While local economic shutdowns are a key factor, the pandemic also has brought a surge of unexpected healthcare costs as well as downstream effects on most sectors of the economy. According to Mr. Crosby’s analysis, at least 17 states appear to have stable revenue situations for 2021, while 10 states face significant challenges and the remainder are likely to face moderate challenges (click on graphic to expand).

 

Fiscal Year 21 Revenue Outlook

Source: MultiState Associates. Data as of January 8, 2021.

Tax Differences

In some cases, federal unemployment benefits have been a boon to the states. In California, for example, wage withholding taxes grew 5.2% since the pandemic started, because people on unemployment are earning more than they did when working. And in many states, unemployment benefits are subject to taxation. The recovery of the stock market since the trough in March also has added windfalls to those states’ coffers where a capital gains tax is levied. Additionally, online shopping skyrocketed in response to the pandemic, and those states that instituted taxes on online sales after the passage of the Wayfair Decision saw revenues increase, while states such as Florida that opted not to tax online sales did not benefit.

Online shopping skyrocketed in response to the pandemic. States that instituted taxes on online sales after the passage of the Wayfair Decision saw revenues increase.

Market Differences

There were significant impacts based on what commodities or sectors each state relies on for revenue. States that rely on tourism, for example, have been hurt by stay-at-home orders and quarantine requirements. In states such as Texas that rely on oil and natural gas resources as key revenue generators, the drop in oil prices and flooding of the market with OPEC oil took a toll. More recently, Mr. Crosby reported, OPEC and Saudi Arabia have tightened the supply, and the price of oil is increasing.

States that rely on tourism have been hurt by
stay-at-home orders and quarantine requirements.

Demographics

Another significant change is related to people moving out of urban areas, which is altering the demographics in many states. (“Will everyone be working from a beach or mountaintop?” Mr. Crosby wondered.) Those changing demographics present both opportunities and challenges for the states.

Conclusion

Mr. Crosby concluded that, despite these times of tremendous uncertainty, the states have managed their recessions without panic. The situation will continue to improve, he predicted, and states need to continue on their deliberate courses to weather this unprecedented recession.

Discussion

Moderated by

Tom Finneran

former Speaker of the House (MA)

Sen. Larry Taylor (Chair, Senate Education Committee, TX): In August, our analysts predicted a $4.6 billion shortfall for the biennial budget; however, improvements in the per barrel price of oil as well as sales tax revenue from online sales have reduced the deficit. We did not increase taxes and were scrupulously careful in spending so that we can get back on track.

Sen. Lee Schoenbeck (Senate President Pro Tempore, SD): South Dakota kept its economy open despite the pandemic, and netted a combination of increased sales taxes and other revenues. These revenues plus federal funding during the pandemic have swelled South Dakota’s coffers with an extra $450 million in one-time funds. South Dakota’s major challenge is different; enriched federal unemployment benefits are a disincentive for people to work, and the state’s industries need more workers.

Sen. Tom Alexander (Chair, Senate Labor, Commerce & Industry Committee, and Chair, Senate HHS Finance Committee, SC): While Mr. Crosby’s map depicted South Carolina as likely to face moderate challenges, Sen. Alexander pointed out that more recent data indicate the state’s finances actually are stable. A challenge the state faces is in their tourism revenues and he queried how quickly tourism was likely to recover.

Mr. Crosby: There is certainly a pent-up demand for getting out and traveling, and regional tourist destinations — places people can drive to, rather than fly to — are likely to see more visitors. Once the vaccine is disseminated, there will be a need to validate “safe to travel” designations for people who have been vaccinated. Furthermore, while personal travel is likely to rebound, business travel is likely to be sluggish for quite a while and may be especially challenging for traditional business destinations.

Once a vaccine is disseminated, “safe to travel”
designations for those vaccinated may help address pent-up demand for travel, boosting regional tourism.

Sen. Hanna Gallo (Senate President Pro Tempore, RI): Rhode Island faces significant challenges because the pandemic wiped out most of the state’s savings. Federal funds and the state's rainy day account were exhausted in order to close a deficit for fiscal 2020 caused by collapsing tax revenue. A voluntary furlough program for state workers is shaving a bit off spending, but the state faces a $600 million deficit in the current fiscal year, and painful cuts may be necessary.

Mr. Crosby: You also have to consider where states started out before the pandemic. Rhode Island and Connecticut have struggled to reinvent their economies and have not kept pace with the 10-year expansion that benefitted most other states.

Sen. Peter Courtney (President of the Senate, OR): Mr. Crosby’s map shows Oregon as “Stable,” but we are facing a serious shortfall. From March to May, tax revenue was down 53% compared with last year due to the pandemic, and wildfires claimed thousands of homes, adding to the burden. What is the source of your optimism?

Mr. Crosby: Our analysis is based on data from each state’s Department of Revenue forecasts. Oregon’s projections show a surplus for the 2021–23 biennium. Gains can be expected from personal and corporate income taxes as the equities market continues to perform well, and federal unemployment benefits contribute to withholding taxes.

Sen. Greg Treat (Senate President Pro Tempore, OK): In April, our Governor projected a $1.3 billion shortfall, while the legislature thought the deficit would be closer to $800 million. But we cut $1.3 billion in order to balance the budget. Now, our December 2020 certification shows that we will actually have a $200 million cash surplus for 2021. However, oil and gas are important to our revenue and that continues to be unpredictable, so we still have to be cautious.

Sen. Phil Berger (Senate President Pro Tempore, NC): Our initial revenue forecast anticipated a $5 billion deficit due to the pandemic; 8 months later, however, we had $4 billion in unreserved cash, without including our rainy day fund. Furthermore, we received an additional $5 billion in federal funds. So, our state is in good shape. But the challenge remains to determine when we will have revenue predictability so that we can make longer-term plans and investments. Perhaps the biggest concern is education, our failure to make sure all students are educated during the pandemic. Many children have already lost a year of learning.

Perhaps the biggest concern is education. Many children
have already lost a year of learning.
— Sen. Phil Berger

Mr. Crosby: Of the 997,000 government jobs that were lost due to the pandemic, 660,000 were school positions, impacting many cohorts of children. Hopefully, the vaccine will enable students and teachers to get back to school.

Sen. Jeremy Miller (President of the Senate, MN): Our November forecast showed a $1.3 billion deficit for the biennium, but this did not include any federal stimulus funding; in fact, our February forecast looks much better. We have been assuming that the vaccine will not be widely distributed before June 2021, and this will also impact the forecast. What is happening in the states with the vaccine roll-out?

Mr. Crosby: The states’ Departments of Health do not have the infrastructure for mass vaccinations, and they are all figuring it out independently — some more and many less successfully. Hopefully, in the next few weeks and months, we will be able to share best practices on the roll-out. [Note: Vaccine roll-out will be the subject of SPF’s upcoming meeting on February 5th.]

Sen. Rod Bray (Senate President Pro Tempore, IN): Earlier last year, the revenue forecast looked bad, so we took 15% cuts across all state agencies. But we’ve had a more successful year. Unemployment improved from a low of 17.5% back to 5% and housing starts are up as people move into Indiana. On December 16, we passed our 2-year budget with the expectation of some revenue increases, so we are optimistic.

The pandemic has overturned the typical pattern of donor states. Some have been hit hard and sought federal support.

Sen. Don Harmon (President of the Senate, IL): Our situation is challenging but not as dire as early projections suggested, and we have the tools to deal with it. The adult use of cannabis was legalized and this is bringing in substantial revenue, but not enough to offset the imbalance. The state took advantage of the Federal Reserve bridge loan program and attempted to pass a progressive income tax, but this was defeated.

Mr. Crosby: The pandemic has overturned the typical pattern of donor states; that is, those that pay more in taxes to the federal government than they receive back in funding. Donor states such as New York and Illinois have been hard hit by the pandemic and have sought federal support. In Illinois, for example, state agency directors have been told to prepare for a 5% budget reduction this year, and to make plans for a potential 10% cut in fiscal year 2022, which begins July 1.

Sen. Ronald Kouchi (President of the Senate, HI): Hawaii relies on tourism. We have the largest service economy in the US, and people have to fly to reach the islands. The pandemic has been a disaster for the tourism industry. Formerly, Hawaii had the lowest unemployment in the US, a good bond rating, and had prepaid many obligations — then the pandemic hit. We had planned to re-open the state in August, but the Fourth of July surge in infections forced us to stay closed. The rules permitting travel among the islands keep changing as the pandemic surges.

The state is in a tough spot and Sen. Kouchi expressed concern that one plan would result in furloughs of government employees. Meanwhile, only half of the US population is willing to get the vaccine, and data from the National Hospitality Association indicate that 50% of people would be willing to travel on airplanes once the vaccine program is well established. We anticipate that it will take 4 years to get back on track economically.

Sen. Karen Fann (President of the Senate, AZ): The COVID-19 outbreak in Arizona has been extensive and, last year, projections forecast that we would have a $1 billion deficit. Fortunately, with many people moving to Arizona and the construction industry booming, we ended up with a $1.7 billion surplus and left our rainy day fund intact.

 

Speaker Biography

Joseph R. Crosby

Chairman and CEO
MultiState

Joe Crosby is the Chairman and CEO of MultiState, a state and local government relations company. He is involved in all aspects of the firm’s efforts to help clients resolve the challenges they face in the state and local government arena, with a concentration on providing strategic counsel, identifying and deploying political assets, and advancing tax policy objectives.

The Forum Welcomes
New Senate Participant

Sen. David Sokola
Senate President Pro Tempore
(Delaware)

CONTACT US

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

 

Tel: 914-693-1818

Copyright © 2020 Senate Presidents' Forum. All rights reserved.

REPORT: January 6 Member Meeting

State Budgets and
the Economic Outlook

Joseph R. Crosby

Chairman and CEO
MultiState

The Senate Presidents’ Forum met for an online meeting on January 6, 2021, to focus on the economic outlook and the impacts of COVID-19 on state budgets. Joe Crosby, Chairman and CEO of the consulting firm MultiState, provided insights on the varying impacts of the pandemic on state economies. He noted that each new national estimate of revenue impacts from the COVID-19 economic shutdown has improved over prior predictions; however, states have been affected differently based on how their taxes are structured and which commodities they produce.

The current recession has greater variability than typical recessions, Mr. Crosby pointed out, because multiple forces are driving it. While local economic shutdowns are a key factor, the pandemic also has brought a surge of unexpected healthcare costs as well as downstream effects on most sectors of the economy. According to Mr. Crosby’s analysis, at least 17 states appear to have stable revenue situations for 2021, while 10 states face significant challenges and the remainder are likely to face moderate challenges (click on graphic to expand).

 

Fiscal Year 21 Revenue Outlook

Source: MultiState Associates. Data as of January 8, 2021.

Tax Differences

In some cases, federal unemployment benefits have been a boon to the states. In California, for example, wage withholding taxes grew 5.2% since the pandemic started, because people on unemployment are earning more than they did when working. And in many states, unemployment benefits are subject to taxation. The recovery of the stock market since the trough in March also has added windfalls to those states’ coffers where a capital gains tax is levied. Additionally, online shopping skyrocketed in response to the pandemic, and those states that instituted taxes on online sales after the passage of the Wayfair Decision saw revenues increase, while states such as Florida that opted not to tax online sales did not benefit.

Online shopping skyrocketed in response to the pandemic. States that instituted taxes on online sales after the passage of the Wayfair Decision saw revenues increase.

Market Differences

There were significant impacts based on what commodities or sectors each state relies on for revenue. States that rely on tourism, for example, have been hurt by stay-at-home orders and quarantine requirements. In states such as Texas that rely on oil and natural gas resources as key revenue generators, the drop in oil prices and flooding of the market with OPEC oil took a toll. More recently, Mr. Crosby reported, OPEC and Saudi Arabia have tightened the supply, and the price of oil is increasing.

States that rely on tourism have been hurt by
stay-at-home orders and quarantine requirements.

Demographics

Another significant change is related to people moving out of urban areas, which is altering the demographics in many states. (“Will everyone be working from a beach or mountaintop?” Mr. Crosby wondered.) Those changing demographics present both opportunities and challenges for the states.

Conclusion

Mr. Crosby concluded that, despite these times of tremendous uncertainty, the states have managed their recessions without panic. The situation will continue to improve, he predicted, and states need to continue on their deliberate courses to weather this unprecedented recession.

Discussion

Moderated by

Tom Finneran

former Speaker of the House (MA)

Sen. Larry Taylor (Chair, Senate Education Committee, TX): In August, our analysts predicted a $4.6 billion shortfall for the biennial budget; however, improvements in the per barrel price of oil as well as sales tax revenue from online sales have reduced the deficit. We did not increase taxes and were scrupulously careful in spending so that we can get back on track.

Sen. Lee Schoenbeck (Senate President Pro Tempore, SD): South Dakota kept its economy open despite the pandemic, and netted a combination of increased sales taxes and other revenues. These revenues plus federal funding during the pandemic have swelled South Dakota’s coffers with an extra $450 million in one-time funds. South Dakota’s major challenge is different; enriched federal unemployment benefits are a disincentive for people to work, and the state’s industries need more workers.

Sen. Tom Alexander (Chair, Senate Labor, Commerce & Industry Committee, and Chair, Senate HHS Finance Committee, SC): While Mr. Crosby’s map depicted South Carolina as likely to face moderate challenges, Sen. Alexander pointed out that more recent data indicate the state’s finances actually are stable. A challenge the state faces is in their tourism revenues and he queried how quickly tourism was likely to recover.

Mr. Crosby: There is certainly a pent-up demand for getting out and traveling, and regional tourist destinations — places people can drive to, rather than fly to — are likely to see more visitors. Once the vaccine is disseminated, there will be a need to validate “safe to travel” designations for people who have been vaccinated. Furthermore, while personal travel is likely to rebound, business travel is likely to be sluggish for quite a while and may be especially challenging for traditional business destinations.

Once a vaccine is disseminated, “safe to travel”
designations for those vaccinated may help address pent-up demand for travel, boosting regional tourism.

Sen. Hanna Gallo (Senate President Pro Tempore, RI): Rhode Island faces significant challenges because the pandemic wiped out most of the state’s savings. Federal funds and the state's rainy day account were exhausted in order to close a deficit for fiscal 2020 caused by collapsing tax revenue. A voluntary furlough program for state workers is shaving a bit off spending, but the state faces a $600 million deficit in the current fiscal year, and painful cuts may be necessary.

Mr. Crosby: You also have to consider where states started out before the pandemic. Rhode Island and Connecticut have struggled to reinvent their economies and have not kept pace with the 10-year expansion that benefitted most other states.

Sen. Peter Courtney (President of the Senate, OR): Mr. Crosby’s map shows Oregon as “Stable,” but we are facing a serious shortfall. From March to May, tax revenue was down 53% compared with last year due to the pandemic, and wildfires claimed thousands of homes, adding to the burden. What is the source of your optimism?

Mr. Crosby: Our analysis is based on data from each state’s Department of Revenue forecasts. Oregon’s projections show a surplus for the 2021–23 biennium. Gains can be expected from personal and corporate income taxes as the equities market continues to perform well, and federal unemployment benefits contribute to withholding taxes.

Sen. Greg Treat (Senate President Pro Tempore, OK): In April, our Governor projected a $1.3 billion shortfall, while the legislature thought the deficit would be closer to $800 million. But we cut $1.3 billion in order to balance the budget. Now, our December 2020 certification shows that we will actually have a $200 million cash surplus for 2021. However, oil and gas are important to our revenue and that continues to be unpredictable, so we still have to be cautious.

Sen. Phil Berger (Senate President Pro Tempore, NC): Our initial revenue forecast anticipated a $5 billion deficit due to the pandemic; 8 months later, however, we had $4 billion in unreserved cash, without including our rainy day fund. Furthermore, we received an additional $5 billion in federal funds. So, our state is in good shape. But the challenge remains to determine when we will have revenue predictability so that we can make longer-term plans and investments. Perhaps the biggest concern is education, our failure to make sure all students are educated during the pandemic. Many children have already lost a year of learning.

Perhaps the biggest concern is education. Many children have already lost a year of learning.— Sen. Phil Berger

Mr. Crosby: Of the 997,000 government jobs that were lost due to the pandemic, 660,000 were school positions, impacting many cohorts of children. Hopefully, the vaccine will enable students and teachers to get back to school.

Sen. Jeremy Miller (President of the Senate, MN): Our November forecast showed a $1.3 billion deficit for the biennium, but this did not include any federal stimulus funding; in fact, our February forecast looks much better. We have been assuming that the vaccine will not be widely distributed before June 2021, and this will also impact the forecast. What is happening in the states with the vaccine roll-out?

Mr. Crosby: The states’ Departments of Health do not have the infrastructure for mass vaccinations, and they are all figuring it out independently — some more and many less successfully. Hopefully, in the next few weeks and months, we will be able to share best practices on the roll-out. [Note: Vaccine roll-out will be the subject of SPF’s upcoming meeting on February 5th.]

Sen. Rod Bray (Senate President Pro Tempore, IN): Earlier last year, the revenue forecast looked bad, so we took 15% cuts across all state agencies. But we’ve had a more successful year. Unemployment improved from a low of 17.5% back to 5% and housing starts are up as people move into Indiana. On December 16, we passed our 2-year budget with the expectation of some revenue increases, so we are optimistic.

The pandemic has overturned the typical pattern of donor states. Some have been hit hard and sought federal support.

Sen. Don Harmon (President of the Senate, IL): Our situation is challenging but not as dire as early projections suggested, and we have the tools to deal with it. The adult use of cannabis was legalized and this is bringing in substantial revenue, but not enough to offset the imbalance. The state took advantage of the Federal Reserve bridge loan program and attempted to pass a progressive income tax, but this was defeated.

Mr. Crosby: The pandemic has overturned the typical pattern of donor states; that is, those that pay more in taxes to the federal government than they receive back in funding. Donor states such as New York and Illinois have been hard hit by the pandemic and have sought federal support. In Illinois, for example, state agency directors have been told to prepare for a 5% budget reduction this year, and to make plans for a potential 10% cut in fiscal year 2022, which begins July 1.

Sen. Ronald Kouchi (President of the Senate, HI): Hawaii relies on tourism. We have the largest service economy in the US, and people have to fly to reach the islands. The pandemic has been a disaster for the tourism industry. Formerly, Hawaii had the lowest unemployment in the US, a good bond rating, and had prepaid many obligations — then the pandemic hit. We had planned to re-open the state in August, but the Fourth of July surge in infections forced us to stay closed. The rules permitting travel among the islands keep changing as the pandemic surges.

The state is in a tough spot and Sen. Kouchi expressed concern that one plan would result in furloughs of government employees. Meanwhile, only half of the US population is willing to get the vaccine, and data from the National Hospitality Association indicate that 50% of people would be willing to travel on airplanes once the vaccine program is well established. We anticipate that it will take 4 years to get back on track economically.

Sen. Karen Fann (President of the Senate, AZ): The COVID-19 outbreak in Arizona has been extensive and, last year, projections forecast that we would have a $1 billion deficit. Fortunately, with many people moving to Arizona and the construction industry booming, we ended up with a $1.7 billion surplus and left our rainy day fund intact.

 

Speaker Biography

Joseph R. Crosby

Chairman and CEO
MultiState

Joe Crosby is the Chairman and CEO of MultiState, a state and local government relations company. He is involved in all aspects of the firm’s efforts to help clients resolve the challenges they face in the state and local government arena, with a concentration on providing strategic counsel, identifying and deploying political assets, and advancing tax policy objectives.

The Forum Welcomes
New Senate Participant

Sen. David Sokola
Senate President Pro Tempore
(Delaware)

CONTACT US

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

 

Tel: 914-693-1818

Copyright © 2020 Senate Presidents' Forum. All rights reserved.

REPORT: January 6 Member Meeting

State Budgets and
the Economic Outlook

Joseph R. Crosby

Chairman and CEO
MultiState

Download PDF of article

 

 

The current recession has greater variability than typical recessions, Mr. Crosby pointed out, because multiple forces are driving it. While local economic shutdowns are a key factor, the pandemic also has brought a surge of unexpected healthcare costs as well as downstream effects on most sectors of the economy. According to Mr. Crosby’s analysis, at least 17 states appear to have stable revenue situations for 2021, while 10 states face significant challenges and the remainder are likely to face moderate challenges (click on graphic to expand).

 

Fiscal Year 21 Revenue Outlook

Source: MultiState Associates. Data as of January 8, 2021.

Tax Differences

In some cases, federal unemployment benefits have been a boon to the states. In California, for example, wage withholding taxes grew 5.2% since the pandemic started, because people on unemployment are earning more than they did when working. And in many states, unemployment benefits are subject to taxation. The recovery of the stock market since the trough in March also has added windfalls to those states’ coffers where a capital gains tax is levied. Additionally, online shopping skyrocketed in response to the pandemic, and those states that instituted taxes on online sales after the passage of the Wayfair Decision saw revenues increase, while states such as Florida that opted not to tax online sales did not benefit.

Online shopping skyrocketed in response to the pandemic. States that instituted taxes on online sales after the passage of the Wayfair Decision saw revenues increase.

Market Differences

There were significant impacts based on what commodities or sectors each state relies on for revenue. States that rely on tourism, for example, have been hurt by stay-at-home orders and quarantine requirements. In states such as Texas that rely on oil and natural gas resources as key revenue generators, the drop in oil prices and flooding of the market with OPEC oil took a toll. More recently, Mr. Crosby reported, OPEC and Saudi Arabia have tightened the supply, and the price of oil is increasing.

States that rely on tourism have been hurt by
stay-at-home orders and quarantine requirements.

Demographics

Another significant change is related to people moving out of urban areas, which is altering the demographics in many states. (“Will everyone be working from a beach or mountaintop?” Mr. Crosby wondered.) Those changing demographics present both opportunities and challenges for the states.

Conclusion

Mr. Crosby concluded that, despite these times of tremendous uncertainty, the states have managed their recessions without panic. The situation will continue to improve, he predicted, and states need to continue on their deliberate courses to weather this unprecedented recession.

Predictions· Economic growth will accelerate in 2021· There will be an increasing demand for natural resources and an increase in regional tourism· It will be important to get students and teachers back to school· There will be additional stimulus funding from federal government· It is uncertain if the new exodus from the cities migration patterns will be sustained, which means cities will continue to lose revenue while states that can attract mobile workers may see increases 

 

Discussion

Moderated by

Tom Finneran

former Speaker of the House (MA)

Sen. Larry Taylor (Chair, Senate Education Committee, TX): In August, our analysts predicted a $4.6 billion shortfall for the biennial budget; however, improvements in the per barrel price of oil as well as sales tax revenue from online sales have reduced the deficit. We did not increase taxes and were scrupulously careful in spending so that we can get back on track.

Sen. Lee Schoenbeck (Senate President Pro Tempore, SD): South Dakota kept its economy open despite the pandemic, and netted a combination of increased sales taxes and other revenues. These revenues plus federal funding during the pandemic have swelled South Dakota’s coffers with an extra $450 million in one-time funds. South Dakota’s major challenge is different; enriched federal unemployment benefits are a disincentive for people to work, and the state’s industries need more workers.

Sen. Tom Alexander (Chair, Senate Labor, Commerce & Industry Committee, and Chair, Senate HHS Finance Committee, SC): While Mr. Crosby’s map depicted South Carolina as likely to face moderate challenges, Sen. Alexander pointed out that more recent data indicate the state’s finances actually are stable. A challenge the state faces is in their tourism revenues and he queried how quickly tourism was likely to recover.

Mr. Crosby: There is certainly a pent-up demand for getting out and traveling, and regional tourist destinations — places people can drive to, rather than fly to — are likely to see more visitors. Once the vaccine is disseminated, there will be a need to validate “safe to travel” designations for people who have been vaccinated. Furthermore, while personal travel is likely to rebound, business travel is likely to be sluggish for quite a while and may be especially challenging for traditional business destinations.

Once a vaccine is disseminated, “safe to travel” designations for those vaccinated may help address pent-up demand for travel, boosting regional tourism.

Sen. Hanna Gallo (Senate President Pro Tempore, RI): Rhode Island faces significant challenges because the pandemic wiped out most of the state’s savings. Federal funds and the state's rainy day account were exhausted in order to close a deficit for fiscal 2020 caused by collapsing tax revenue. A voluntary furlough program for state workers is shaving a bit off spending, but the state faces a $600 million deficit in the current fiscal year, and painful cuts may be necessary.

Mr. Crosby: You also have to consider where states started out before the pandemic. Rhode Island and Connecticut have struggled to reinvent their economies and have not kept pace with the 10-year expansion that benefitted most other states.

Sen. Peter Courtney (President of the Senate, OR): Mr. Crosby’s map shows Oregon as “Stable,” but we are facing a serious shortfall. From March to May, tax revenue was down 53% compared with last year due to the pandemic, and wildfires claimed thousands of homes, adding to the burden. What is the source of your optimism?

Mr. Crosby: Our analysis is based on data from each state’s Department of Revenue forecasts. Oregon’s projections show a surplus for the 2021–23 biennium. Gains can be expected from personal and corporate income taxes as the equities market continues to perform well, and federal unemployment benefits contribute to withholding taxes.

Sen. Greg Treat (Senate President Pro Tempore, OK): In April, our Governor projected a $1.3 billion shortfall, while the legislature thought the deficit would be closer to $800 million. But we cut $1.3 billion in order to balance the budget. Now, our December 2020 certification shows that we will actually have a $200 million cash surplus for 2021. However, oil and gas are important to our revenue and that continues to be unpredictable, so we still have to be cautious.

Sen. Phil Berger (Senate President Pro Tempore, NC): Our initial revenue forecast anticipated a $5 billion deficit due to the pandemic; 8 months later, however, we had $4 billion in unreserved cash, without including our rainy day fund. Furthermore, we received an additional $5 billion in federal funds. So, our state is in good shape. But the challenge remains to determine when we will have revenue predictability so that we can make longer-term plans and investments. Perhaps the biggest concern is education, our failure to make sure all students are educated during the pandemic. Many children have already lost a year of learning.

Perhaps the biggest concern is education. Many children have already lost a year of learning.— Sen. Phil Berger

Mr. Crosby: Of the 997,000 government jobs that were lost due to the pandemic, 660,000 were school positions, impacting many cohorts of children. Hopefully, the vaccine will enable students and teachers to get back to school.

Sen. Jeremy Miller (President of the Senate, MN): Our November forecast showed a $1.3 billion deficit for the biennium, but this did not include any federal stimulus funding; in fact, our February forecast looks much better. We have been assuming that the vaccine will not be widely distributed before June 2021, and this will also impact the forecast. What is happening in the states with the vaccine roll-out?

Mr. Crosby: The states’ Departments of Health do not have the infrastructure for mass vaccinations, and they are all figuring it out independently — some more and many less successfully. Hopefully, in the next few weeks and months, we will be able to share best practices on the roll-out. [Note: Vaccine roll-out will be the subject of SPF’s upcoming meeting on February 5th.]

Sen. Rod Bray (Senate President Pro Tempore, IN): Earlier last year, the revenue forecast looked bad, so we took 15% cuts across all state agencies. But we’ve had a more successful year. Unemployment improved from a low of 17.5% back to 5% and housing starts are up as people move into Indiana. On December 16, we passed our 2-year budget with the expectation of some revenue increases, so we are optimistic.

The pandemic has overturned the typical pattern of donor states. Some have been hit hard and sought federal support.

Sen. Don Harmon (President of the Senate, IL): Our situation is challenging but not as dire as early projections suggested, and we have the tools to deal with it. The adult use of cannabis was legalized and this is bringing in substantial revenue, but not enough to offset the imbalance. The state took advantage of the Federal Reserve bridge loan program and attempted to pass a progressive income tax, but this was defeated.

Mr. Crosby: The pandemic has overturned the typical pattern of donor states; that is, those that pay more in taxes to the federal government than they receive back in funding. Donor states such as New York and Illinois have been hard hit by the pandemic and have sought federal support. In Illinois, for example, state agency directors have been told to prepare for a 5% budget reduction this year, and to make plans for a potential 10% cut in fiscal year 2022, which begins July 1.

Sen. Ronald Kouchi (President of the Senate, HI): Hawaii relies on tourism. We have the largest service economy in the US, and people have to fly to reach the islands. The pandemic has been a disaster for the tourism industry. Formerly, Hawaii had the lowest unemployment in the US, a good bond rating, and had prepaid many obligations — then the pandemic hit. We had planned to re-open the state in August, but the Fourth of July surge in infections forced us to stay closed. The rules permitting travel among the islands keep changing as the pandemic surges.

The state is in a tough spot and Sen. Kouchi expressed concern that one plan would result in furloughs of government employees. Meanwhile, only half of the US population is willing to get the vaccine, and data from the National Hospitality Association indicate that 50% of people would be willing to travel on airplanes once the vaccine program is well established. We anticipate that it will take 4 years to get back on track economically.

Sen. Karen Fann (President of the Senate, AZ): The COVID-19 outbreak in Arizona has been extensive and, last year, projections forecast that we would have a $1 billion deficit. Fortunately, with many people moving to Arizona and the construction industry booming, we ended up with a $1.7 billion surplus and left our rainy day fund intact.

 

Speaker Biography

Joseph R. Crosby

Chairman and CEO
MultiState

Joe Crosby is the Chairman and CEO of MultiState, a state and local government relations company. He is involved in all aspects of the firm’s efforts to help clients resolve the challenges they face in the state and local government arena, with a concentration on providing strategic counsel, identifying and deploying political assets, and advancing tax policy objectives.

CONTACT US

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

Tel: 914-693-1818

Copyright © 2020 Senate Presidents' Forum. All rights reserved.