After huge pandemic losses, governments see rapid rebound | California News
By DAVID A. LIEB and CAMILLE FASSETT, Associated Press
State and local governments lost at least $117 billion in expected revenue at the start of the pandemic, analysis by the Associated Press shows, but many are now awash in record sums, spurred in part by federal aid.
In response to this dramatic turnaround, governors, legislators and local officials proposed increased spending along with a new wave of tax cuts.
“The ultimate effect of the pandemic has been a net positive,” said Stephen Parker, deputy city manager of Upland, a suburb of Los Angeles, where sales tax revenue is skyrocketing. “Isn’t it amazing? It’s just crazy to think about that.”
Upland, a town of 79,000, was representative of many towns at the start of the pandemic. It reported an estimated loss of nearly $6.1 million in 2020 — the result of a steep but short-lived national recession and what Parker describes as the Treasury Department’s “generous” method of calculating losses. That figure was the median amount among more than 900 cities that reported their revenues to the department under the American Rescue Plan Act.
Upland’s financial picture turned around before 2020 even ended, Parker said. Federal COVID-19 stimulus checks have played a role. The same was true for the shift in consumer spending towards goods rather than services. This has increased city revenue, Parker said, because services are often exempt from sales tax, while goods are not.
The Pandemic Relief Act championed by Democrats and signed by President Joe Biden last March included $350 billion in aid to state and local governments. The Treasury Department required states, counties and major cities to file reports last year detailing their initial plans for the money. These governments were also asked to estimate their losses for 2020 by comparing actual revenues to expected revenues according to a Treasury formula.
Although revenue figures were left blank by nearly a quarter of the nearly 3,700 governments that filed reports, the data nonetheless provides the most comprehensive picture yet of the financial strain on governments over the of the first year of the pandemic.
More than two-thirds of state and local governments reported at least some losses, ranging from a few thousand dollars in some rural counties to more than $12 billion for the state of Texas, according to AP analysis. The total was $117.5 billion.
The Treasury Department last October declined a request by the AP to release the revenue loss data under the federal Freedom of Information Act, saying it would be publicly available later. It recently published the data on its website. The next reports are due Monday for some governments and April 30 for others.
The ministry used the lost revenue to determine how much flexibility governments should have in spending aid. Under guidelines released last May, governments that posted a loss were free to spend an equal amount on almost any government service, including roads and other projects not allowed by the rules.
A final rule released earlier this month expanded that flexibility by allowing governments to claim up to $10 million in lost revenue, even if actual losses were lower.
Upland, which is receiving $15 million, plans to use some of its flex spending to repave parking lots and repair hundreds of sections of sidewalks that might not have otherwise qualified.
Federal aid hasn’t been the only factor that has helped governments rebound.
Financial analysts also cite inflation, which has driven up prices and bolstered sales tax collections. Many consumers also had more to spend due to stimulus checks. A strong stock market has pushed up capital gains taxes. And an early rise in pandemic unemployment spared many high earners, who shifted to working from home while continuing to pay income taxes.
In many places, the income rebound has exceeded pre-pandemic levels. Total state tax revenue from April to November was up 20% from the same period in 2019, according to an Urban Institute report released earlier this month.
For governments that were already under financial pressure, the pandemic compounded their losses but also resulted in a financial windfall.
The Hudson Valley town of Poughkeepsie was ranked by the Comptroller of New York as the most financially stressed community in the state in 2020. With a pre-pandemic deficit of around $7 million and no reservations, the city quickly cut spending, sold assets, froze hiring and instituted an early retirement program “in a desperate effort to fill the gap” at the start of the pandemic, city administrator Marc said. Nelson.
The city reported a revenue loss of nearly $4.5 million in 2020 according to the Treasury Department formula. He receives more than 20 million dollars from the American bailout. Although the relief money cannot be used to eliminate the deficit, the city plans to make major improvements to parks and pools, including the complete reconstruction of a dilapidated bathhouse that relied on a toilet. laptops.
“These are things that the city wouldn’t have been able to do without the COVID relief money,” Nelson said.
Although they are spending federal aid, some Republican officials insist it was unnecessary given rapidly rebounding tax revenues.
Missouri reported an estimated $900 million loss for 2020 but ended its 2021 fiscal year with a record cash balance. Republican Gov. Mike Parson recently proposed a budget of $47 billion, up nearly a third from the current year due to increased federal and state revenues. He wants to spend more on infrastructure and civil servant salaries while saving more.
“As other states use federal dollars to fill spending gaps and budget shortfalls, we will make investments in the future,” he said in his state of the state address.
In some cases, government losses were not as severe as Treasury figures might suggest.
Greer County in rural southwest Oklahoma reported a revenue loss of $363,630 in 2020, around the national median of counties reporting revenue. That was 10% of the county’s expected revenue under the Treasury Department’s formula, but it didn’t result in any budget cuts, county clerk Tiffany Buchanan said.
“The county didn’t feel such a loss,” Buchanan said, explaining, “We live on a very tight, strict budget as it is.”
The county plans to use part of its $1.1 million from the U.S. bailout to help fund the sheriff’s office and pay for emergency medical personnel.
Some states, including California and Texas, predicted big revenue losses at the start of the pandemic but have since seen big gains.
When it passed a budget at the start of the pandemic, California expected the recession to lead to a $54 billion deficit. That led officials to defer payments to schools and community colleges and to cut state employee pay, according to the state treasury report.
Now California is forecasting a surplus of nearly $46 billion spurred by record tax collections, leaving officials to look for ways to use the money. Governor Gavin Newsom recently proposed a budget that would expand health coverage to all low-income adults living illegally in the state while simultaneously cutting taxes. The Democratic governor also said a large tax refund was likely in order.
“I will keep the governor’s feet on fire and I will hold him to his word to return excess dollars to taxpayers,” said GOP State Senator Melissa Melendez.
Associated Press writer Adam Beam contributed to this report.
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