(Reuters) – A massive federal spending bill aimed at deflecting the economic harm caused by the spreading coronavirus does not address the billions of tax dollars U.S. states stand to lose as major parts of the nation have shut down.
While the $2.2 trillion bill, which won final congressional approval on Friday, allocates $150 billion for states and cities, that money is just a stopgap reimbursement for expenses incurred from fighting the virus.
Meanwhile, income and sales taxes, the biggest revenue producers for states, will drop as unemployment skyrockets and consumer spending falls with the shuttering of nonessential businesses and services.
New York Governor Andrew Cuomo on Friday said his state, where New York City has become the nation’s hot spot for virus cases, “has no state revenues to speak of” and faces dramatic spending cuts.
“We have about a $10 (billion) to $15 billion hole. Federal government gave us zero, nada, niente, zilch,” he told reporters, noting that the $5 billion allocated to New York in the federal legislation covers only coronavirus expenses.
Citing expected “precipitous declines in revenues,” New Jersey State Treasurer Elizabeth Maher Muoio froze $920 million in spending this week.
U.S. House Speaker Nancy Pelosi has acknowledged the need for further financial assistance for states beyond the current legislation.
Eric Kim, Fitch Ratings’ head of state government ratings, said, “New spending is not the problem for most states, but rather lost revenue brought on by severely reduced economic activity.”
State revenue reports for the month of March will begin to show a slide in revenue, while April, the biggest month for state personal income tax collections, presents a new problem.
Most of the 41 states that levy taxes on personal wages and salary have followed the U.S. government’s lead and extended the income tax filing deadline to July 15. That move will result in revenue gaps that spill into a new fiscal year, which begins on July 1 for most states.
And so-called rainy day funds – money set aside for the unforeseen – are unlikely to offer much of a cushion.
Balances in these funds as a percentage of general fund spending reached an all-time high of 7.6% in fiscal 2019 and totaled a collective $72.3 billion, according to the National Association of State Budget Officers.
California has a $21 billion rainy day fund, its largest ever, for a nearly $150 billion general fund budget. Illinois, the lowest-rated U.S. state at a notch or two above junk, has just under $60,000 stashed away, which would cover state operations for less than 30 seconds, according to the state comptroller’s office.
Reporting by Karen Pierog in Chicago, Additional reporting by Lisa Lambert in Washington and Maria Caspani in New York; Editing by Matthew Lewis