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COVID-19 is having a financial impact on local and state governments. New York state projects a loss of nearly $63 billion through the 2024 fiscal year. The state budget division says that’s a direct consequence of the pandemic.
But while the federal government is allowed to run a budget deficit, states and local jurisdictions can’t. Financial impacts on state and local governments depend on vulnerability factors like where the revenue comes from.
Professor Michael Wolkoff is the deputy chair of economics department at the University of Rochester.
Credit University of Rochester
“In the fiscal sense, exposure would be that you rely upon revenue sources that are more likely to be impacted, let’s say income taxes rather than property taxes or state aid rather than locally raised revenue,” said Michael Wolkoff, economics professor at the University of Rochester.
December 18, 2020
State governments depend on revenue from sales tax and income tax two areas that have been hit hard during the COVID-19 pandemic. (Getty Images photo)
A federal stimulus plan could make a difference at relatively little cost
The COVID-19 pandemic is taking its toll on state and local government revenues. The Brookings Institution projects that revenues will decline $155 billion in 2020, $167 billion in 2021, and $145 billion in 2022. The amounts are even greater if fees to hospitals and higher education are taken into account.
“States generally get most of their revenue from income and sales taxes,” says Michael Wolkoff, a professor of economics at the University of Rochester. “Both of those revenue sources have been hit hard, and the way they’re dealing with it is by cutting back on assistance to local governments.”