Grim Forecasts Don't Fit The Facts for "The Pandemic Period"

See for yourselves: Arizona took in even more money last year than in 2019.

Virus Did Not Bring Financial Rout That Many States Feared

Grim forecasts held up for a few states, but many took in about as much tax revenue as before the pandemic — sometimes a lot more.

 

By Mary Williams Walsh

Graphics by Karl Russell

• March 1, 2021

Throughout the debate over stimulus measures, one question has repeatedly brought gridlock in Washington: Should the states get no-strings federal aid?

Republicans have mostly said no, casting it as a bailout for spendthrift blue states. Democrats have argued the opposite, saying that states face dire fiscal consequences without aid, and included $350 billion in relief for state and local governments in President Biden’s $1.9 trillion federal stimulus bill, which narrowly passed the House this past weekend. It faces a much tougher fight in the Senate.

As it turns out, new data shows that a year after the pandemic wrought economic devastation around the country, forcing states to revise their revenue forecasts and prepare for the worst, for many the worst didn’t come . . . 

A researcher at the Urban-Brookings Tax Policy Center, a nonpartisan think tank, found that total state revenues from April through December were down just 1.8 percent from the same period in 2019. Moody’s Analytics used a different method and found that 31 states now had enough cash to fully absorb the economic stress of the pandemic recession on their own.

. . .Also, averaging the states’ revenues — the J.P. Morgan report used weighted averages to show that revenues last year were down just 0.06 percent from 2019 — can mask the pain of the states whose tax collections have not yet rebounded. And focusing just on state revenue collection glosses over the weakness of local governments, which administer many social services under state administration.

“We know that local governments are doing far worse than the states,” said Lucy Dadayan, a senior research associate at the Tax Policy Center.

> No matter how they measured the states’ rebound, the analysts said the federal stimulus money that began to flow to consumers and small businesses late in March — especially the extraordinary support for the jobless through the end of July — had helped greatly. Those programs allowed consumer spending to continue, even as unemployment surged to levels not seen since the 1930s.

> Consumer spending, in turn, bolstered the states’ sales tax revenues.

> The federal unemployment benefits also buoyed income tax receipts in the 36 states that tax unemployment benefits.

> Many states also benefited from tax-law changes enacted before the pandemic, after a 2018 Supreme Court decision that let them compel out-of-state retailers to collect sales taxes on online purchases. The new laws ended years of legal wrangling over how to tax such sales, just in time to help the states weather the pandemic-induced shift to online shopping.

With some states now “enjoying windfalls” and others still struggling, Mr. White said a smaller amount of money, more carefully targeted to the states that needed it most, would be the most efficient approach for Congress. But getting assistance to those governments that truly need it, without sending unnecessary aid to those that do not, will require some “exceptional creativity,” he said.