Horizons Fall/Winter 2020

INDUSTRY UPDATE PUBLIC SECTOR

Revenue Realities for State & Local Governments in the Time of Coronavirus by Max Haberkorn, CPA

T he number of citizens a governmental entity is able to serve directly correlates with revenues collected. The economic impact of COVID-19 on state and local government revenue sources may end up being a much more prolonged issue than originally expected. The first revenue impact to state and local governments was, and continues to be, related to the collection of sales tax. Estimates of lost sales tax in 2020 alone are expected to be in excess of $54 billion, and depending on the timing of a potential vaccine and additional shutdown extensions, the impact in 2021 could range between $25 to $137 billion.

This estimate doesn’t include other additional value taxes such as lodging, gas or other selective sales taxes, which are also expected to take a hit as travel remains low. This immediate impact is being addressed through current budget amendments that are slashing non-critical governmental programs and proposing workforce layoffs. However, roughly only 15% of state revenues and 5% of local government revenues are comprised of these sales tax types. The bigger hits are more likely to come to governments in the future, through losses of income taxes and property taxes.

32 Revenue Realities for State & Local Governments in the Time of Coronavirus