After massive damage caused by the pandemic, governments see a quick recovery



State and local governments have lost at least $117 billion in projected revenue during the early stages of the pandemic, but many are now inundated with record amounts, according to an analysis by the Associated Press. spurred in part by federal aid.

In response to the dramatic change, governors, lawmakers and local officials have proposed increased spending as well as a new wave of tax cuts.

“The bottom line of the pandemic has been very positive,” said Stephen Parker, assistant city manager for the Los Angeles suburb of Upland, where sales tax revenue is skyrocketing. “Isn’t that hard to believe? It’s crazy to think about it.”

Upland, a city of 79,000 people, was representative of many cities at the start of the pandemic. It reported an estimated loss of nearly $6.1 million in 2020 – the result of a sharp but short-lived national recession and what Parker described as a “proud” approach by the Treasury. zoom” to calculate losses. That number is the average of the more than 900 cities that reported their revenue to the department under the American Rescue Plan Act.

Upland’s financial position changed even before the end of 2020. Federal COVID-19 stimulus tests played a role, Parker said. So there has been a shift in consumer spending toward goods instead of services. The city’s revenue has lifted because services are typically exempt from sales tax, while goods are not, Parker said.

The pandemic relief bill, backed by Democrats and signed by President Joe Biden last March, includes $350 billion in aid to states and local governments. The Treasury Department required states, counties and larger cities to submit reports last year detailing their initial plans for the money. Those governments were also asked to estimate their losses for 2020 by comparing actual revenue with projected revenue according to the Treasury formula.

Although the revenue figure was vacated by nearly a quarter of the approximately 3,700 governments that submitted reports, the data still provides the most comprehensive picture yet of the financial strain on governments in the first year. of the pandemic.

According to the AP analysis, more than two-thirds of state and local governments have reported at least some damage, ranging from a few thousand dollars in some rural counties to more than $12 billion in Texas. The total is 117.5 billion dollars.

The Treasury Department last October denied AP’s request to release revenue loss data under the federal Freedom of Information Act, saying it would be made publicly available later. It recently posted data on its website. Follow-up reports are due on Monday for some governments and April 30 for others.

The department used lost revenue to determine how flexible governments are in spending aid. Under guidance issued last May, loss-making governments are free to spend an equal amount on almost any government service, including roads and other projects that are not authorized. according to the rules.

A final rule announced earlier this month expanded that flexibility by allowing governments to claim up to $10 million in revenue loss, even if the actual damage was less. .

Upland, which received $15 million, plans to use part of its flexible spending to rebuild parking lots and repair hundreds of sidewalks that may not be eligible.

Federal support isn’t the only factor helping governments recover.

Financial analysts also cite inflation, which has pushed up prices and spurred sales tax collection. Many consumers also have to spend more because of the stimulus checks. A strong stock market has raised capital gains taxes. And the pandemic of rising unemployment soon led many higher earners to switch to working from home while continuing to pay income taxes.

In many places, revenue recovery exceeds pre-pandemic levels. Total state tax revenue from April last year to November was up 20% year-over-year in 2019, according to a Urban Institute report released earlier this month.

For governments already strained financially, the pandemic has added to their losses but has also resulted in large sums of money.

The city of Poughkeepsie in the Hudson River Valley is rated by New York actuaries as the most financially stressed community in the state in 2020. With a pre-pandemic deficit of about $7 million and no reserves, the city The city quickly cut spending, sold properties, froze hiring, and City Manager Marc Nelson said it had instituted an early retirement program “in a desperate attempt to close the gap” as the translation begins.

The city reported a 2020 revenue loss of nearly $4.5 million according to a Treasury Department formula. It received more than $20 million from the American Rescue Plan. While the relief money cannot be used to close the deficit, the city plans to make major improvements to the parks and pools, including a complete rebuild of an old bathhouse that relies on portable toilets. motion.

“These are things that would not have been possible for the city to do if it weren’t for the COVID relief money,” said Nelson.

Although they are spending federal aid, some Republican officials insist it is not necessary given the rapid recovery of tax revenues.

Missouri reported an estimated loss of $900 million for 2020 but ended fiscal year 2021 with a record cash balance. Republican Governor Mike Parson recently proposed a $47 billion budget, up nearly a third from the current year due to soaring federal and state revenue. He wants to spend more on infrastructure and staff wages while also saving more.

“As other states use federal dollars to fill spending gaps and budget shortfalls, we will invest in the future,” he said in his State of the Union address.

In some cases, government losses are not as dramatic as Treasury figures might suggest.

Greer County in rural southwestern Oklahoma reported a 2020 revenue loss of $363,630 — about the national average for counties reporting their revenue. That figure includes 10% of the county’s projected revenue under the Treasury Department’s formula, but it doesn’t cost the budget a cut, District Secretary Tiffany Buchanan said.

“The county doesn’t feel that much of a loss,” Buchanan said, explaining: “We are living on a very tight, tight budget like we are right now.”

The county plans to use some of the $1.1 million from the American Rescue Plan to help fund the sheriff’s office and pay for emergency medical personnel.

Several states, including California and Texas, expected large revenue losses at the start of the pandemic but have since posted large profits.

When it passed the budget early in the pandemic, California had expected the recession to cause a $54 billion deficit. That has led officials to delay payments to schools and community colleges and reduce wages for state employees, according to a state Treasury report.

Now California is projecting a surplus of nearly $46 billion in record tax revenues, leaving officials scrambling to figure out how to use the money. Governor Gavin Newsom recently proposed a budget that would expand health insurance coverage to all low-income adults living illegally in the state while cutting taxes. The Democratic governor also said a significant tax cut is likely.

“I will keep the governor on fire and keep his word to return the surplus dollars to taxpayers,” said GOP Senator Melissa Melendez.


Associated Press journalist Adam Beam contributed to this report.

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