According to an Associated Press analysis of the situation, state and local governments lost $117 billion in revenue in the early stages of the pandemic. However, many are now flooded with record-breaking amounts of money thanks in part to federal aid.
Governors, legislators and local officials proposed an increase in spending to respond to the dramatic turnaround. They also suggested a new wave tax cuts.
Stephen Parker, assistant city manager in Upland, Los Angeles, said that the pandemic had a net effect. Upland’s sales tax revenues are on the rise. Isn’t it amazing? It is crazy to even think about it.
Upland, which is a city of 79,000 people, was one of many cities affected by the pandemic. It suffered a loss of almost $6.1 million in 2020, the result of a sharp but brief-lived recession and what Parker calls a “generous” Treasury Department method of calculating losses. This was the median figure from more than 900 cities who reported their revenue to the department in accordance with the American Rescue Plan Act.
Parker stated that Upland’s financial position was transformed even before 2020 ended. Federal COVID-19 stimulant checks played a part. Also, consumers began to spend more on goods than services. Parker explained that this resulted in increased revenues for the city because services are often exempted from sales taxes while goods are not.
President Joe Biden signed the pandemic relief bill, which was championed and supported by Democrats, last March. It included $350 billion for aid to local governments and states. Last year, the Treasury Department required that all states, counties, and large cities file reports detailing their initial plans to receive the money. These governments were also asked to estimate their 2020 losses by comparing actual revenue with expected revenue using a Treasury formula.
Despite the fact that nearly one-quarter (or 3,700) of the reports submitted by governments did not include revenue figures, this data still provides the most complete picture of the financial strain governments experienced during the first year of the pandemic.
According to the AP analysis, more than two-thirds (63%) of state and local governments had reported losses. These ranged from a few thousand dollars for rural counties to over $12 billion for Texas. The sum was $117.5 million.
Last October, the Treasury Department declined to release revenue-loss data as required by the federal Freedom of Information Act. It stated that it would make the information available publicly later. The data were recently made available on the Treasury Department’s website. For some governments, the next reports will be due Monday and for others on April 30.
To determine the amount of flexibility that governments have in spending aid, the department looked at lost revenue. According to guidelines published last May, governments with a loss could spend the same amount on nearly all government services, even roads, that are not allowed by the rules.
A final rule, released earlier in the month, expanded this flexibility. It allows governments to claim revenue losses up to $10,000,000 even if they are less.
Upland will receive $15 million and use some of its flexible spending money to repair parking lots and hundreds of sections on sidewalks that may not have otherwise been eligible.
Not only was federal assistance a factor in helping governments rebound,
Inflation is also mentioned by financial analysts. It pushed up prices as well as boosted sales tax collections. The stimulus checks also meant that many consumers had more money to spend. A strong stock market drove up capital gains taxes. Many higher-earners were spared by the early rise in unemployment, and they opted to work from home while still paying income taxes.
Many places saw revenue recover faster than pre-pandemic levels. According to a report by Urban Institute, total state tax revenues rose 20% between April and November last year and the same period in 2019.
The pandemic not only increased the financial difficulties of governments already financially strapped, but also brought them a cash boost.
Poughkeepsie, a Hudson River Valley community, was named by the New York Comptroller as the most financially stressed state in 2020. Marc Nelson, the City Administrator, stated that the city had a deficit of $7 million before the pandemic and no reserves. The city cut spending and froze employment, and established an early retirement program in “a desperate attempt to close the gap”.
According to the Treasury Department’s formula, the city suffered a revenue loss of almost $4.5 million in 2020. The American Rescue Plan is providing more than $20 million to the city. The city will use the money to improve parks and swimming pools. It also plans to rebuild a neglected bathhouse that had been dependent on portable toilets.
Nelson stated that these are items that the city would not be able to handle if it weren’t for COVID relief money.
Despite the fact that they are spending federal aid, some Republican officials claim it is unnecessary given the rapid rebound in tax revenues.
Missouri suffered a loss of $900 million in 2020, but it ended its fiscal year 2021 with record cash reserves. Republican Governor. Republican Gov. Mike Parson proposed recently a budget of $47 billion that was nearly one-third higher than the current year due to surging state and federal revenues. Parson wants to increase spending on infrastructure and salaries for public employees while simultaneously saving more.
In his State of the State address, he stated that “when other states will use federal dollars to fulfill spending gaps or budget shortfalls”, he added.
Sometimes, the government’s losses were not as severe as the Treasury numbers would suggest.
Greer County, in rural southwest Oklahoma, reported a revenue loss of $363,000.630 for 2020 — which is close to the national median county reporting its revenues. This was 10% of the expected revenue for the county under the Treasury Department formula but it did not prompt budget cuts, Tiffany Buchanan, County Clerk, said.
Buchanan stated that the county did not feel any loss. He explained, “We live with a very tight budget as it stands.”
The county will use $1.1 million of the American Rescue Plan funds to pay for the sheriff’s office as well as emergency medical personnel.
Some states, such as Texas and California, had projected huge revenue losses at the beginning of the pandemic, but have seen large gains since then.
California expected that the recession would cause a $54 Billion deficit when it passed its budget in the early days of the pandemic. According to the state’s Treasury report, officials were forced to delay payments to schools and community college and to decrease state employee pay.
California now projects a surplus of nearly $46 billion, fueled by record tax collection. Officials are looking for ways to spend the money. Gov. Gavin Newsom proposed recently a budget which would increase health coverage for all low-income adults who are illegally living in the state, while also cutting taxes. A substantial tax reduction is also likely, according to the Democratic governor.
GOP state senator Melissa Melendez stated that she would “hold the governor to the fire” and insist on his promise to return surplus dollars to taxpayers.
