The Impact of COVID-19 on State Revenues in New England

By Carolyn Morwick

New England’s state budgets are reeling from coronavirus-related shutdowns and fears. Here’s an early look …

Connecticut. Gov. Ned Lamont and state lawmakers are facing a $904 million deficit for FY20 and a $2.1 billion deficit for FY21. The general fund shortfall, according to the nonpartisan Office of Fiscal Analysis, will swell to $3.2 billion in 2022. Connecticut’s Rainy Day Fund currently has $2.5 billion and will be the source for addressing the $904 million shortfall for FY20. That will leave the Rainy Day Fund with $1.9 billion which will not cover the FY21 budget shortfall.

Melissa McCaw, the state’s budget chief in the Office of Policy and Management,  indicated work has begun on a deficit mitigation plan for FY21. She said there will be approximately $100 million in revenue changes as part of the deficit mitigation along with $415 million in rescissions and other measures that will reduce the shortfall to $1.8 billion. She doesn’t expect a reliable figure on the FY20 shortfall to emerge until late August or September. The figure for FY21 will more than likely be known in November.

Lamont’s administration will be looking to the General Assembly for help in reducing the shortfalls. The governor also is hopeful that the federal government will provide more stimulus money for state and local governments.

Maine. The Maine Legislature’s Appropriations and Financial Affairs Committee met on May 29 to discuss the shortfall for FY20, which ends June 30. The meeting was the first for the committee since the Legislature adjourned abruptly in early March, as the first cases of COVID-19 appeared in Maine. It was also the first formal opportunity for lawmakers to hear from the state’s top financial official, Kirsten Figueroa, commissioner of the Department of Administration and Financial Services.

Figueroa told the committee that, despite a loss of revenue between $150 million and $160 million, the state stands to end FY20 with a balanced budget without touching its Rainy Day fund. She credited Gov. Janet Mills and the Legislature with foregoing several proposals that would have added to the spending for FY21 and instead dedicating $192 million to the General Fund as a safeguard against the pandemic.  While national models estimate Maine’s shortfall for FY21 could reach $1 billion, Figueroa predicted the shortfall will be closer to $525 million. She indicated that Maine’s Rainy Day fund can take care of half of the $525 million.

Mills had not spent any of the $1.25 billion in federal CARES Act funding, saying she wants more detailed guidance from Congress or the Trump administration on authorized uses. States have been advised that they are not allowed to use the CARES funding to “backfill” lost revenue.

Massachusetts. Beacon Hill watchdogs predict a shortfall of $750 million to $800 million for FY20, which could be addressed by the state’s Rainy Day Fund, which has $3.5 billion. The outlook for FY21 predicts a shortfall of $6 billion. Budget writers for the House and Senate Ways and Means committees say there is little hope that a budget will be ready by July 1. With the uncertainty of a changing revenue picture, indications are that month-to-month budgets may be the best way to proceed. If unemployment reaches 22% by June, the Massachusetts Taxpayers Foundation advises this would cause withholding taxes to fall by $1.9 billion and cost the state $2 billion in sales tax revenue.

In a letter to Senate Ways and Means Committee Chair Michael Rodrigues, House Ways and Means Chair Aaron Michlewitz and Secretary of Administration and Finance Michael Heffernan, Eileen McAnneny of the Massachusetts Taxpayers Foundation suggested delaying the funding of $1.5 billion for K-12 schools beginning in FY21, which is scheduled to continue for seven years. The proposal that passed did not cite a revenue source, leaving it up to the Legislature to include funds in each year’s budget. McAnneny also suggested delaying a transfer of $3.1 billion to the state’s pension fund.

In mid-May, Massachusetts state officials opened a $1.75 billion line of credit to help plug budget gaps created by the coronavirus, a fiscal maneuver that one watchdog warned could hang over the state for years.

On June 3, the Massachusetts Department of Revenue released the May report on tax revenue ,which indicates that revenues are $2.253 billion short of projections. With one month left before the new fiscal year begins, tax collections have yielded $24.8 billion which falls short of the $30.3 billion already budgeted for FY21.

New Hampshire. The state’s top tax official says the coronavirus pandemic could reduce state coffers by more than $450 million through the middle of next year. State Revenue Commissioner Lindsey Stepp told lawmakers the department’s latest revenue estimates don’t include the possibility of a second wave of the coronavirus. Stepp expects collections on all major taxes to decline, some precipitously. She told lawmakers business tax receipts are expected to be off by 15% this year, and more than 20% next year—a nearly $300 million decline. She expects collections from the meals and rentals taxes to come in $100 million below prior estimates.

Gov. Chris Sununu predicted state revenue losses to top a half-billion dollars through next year. The coronavirus pandemic is poised to deal a severe blow to New Hampshire’s state budget, potentially leading to $500 million in program cuts in the next year. He added that the expected revenue losses that accompany business shutdowns will mean the state will need to scale back its spending. He predicted massive budget cuts across the state.

Democratic lawmakers have responded by admitting that, while revenue losses are unavoidable, the state could avoid sweeping cuts by tapping into the $1.25 billion in federal stimulus funding to save New Hampshire programs.

Sununu responded that using the stimulus money to bolster state revenue losses, even if the result of the COVID-19 pandemic, is prohibited by law.

The governor is currently choosing to continue spending the CARES Act funds without the direct oversight of the Legislature. Democratic leaders are suing the governor to re-insert the Legislature in the process.

Speaker Steve Shurtleff and Senate President Donna Soucy announced that legislators planned to resume their session on June 11. Aiming to adhere to social distancing advice from the State Department of Public Health, 394 members of the House will meet at the Whittemore Center at the University of New Hampshire, while the 24 members of the Senate will meet in the House Chamber.

Rhode Island. Rhode Island’s elected leaders are facing a budget gap of more than $800 million. The shortfall is made up of a $280.9 million gap in the current year, FY20 ending on June 30 and $515.8 million in FY21, beginning July 1.

The COVID-19 health emergency and near shutdown of the economy eroded state tax collections, gambling profits and other revenue for this year and next by a combined $797 million from the projections in Gov. Gina Raimondo’s January budget proposal.

Net state spending over the two years is now projected to rise $53.9 million over the previous estimates, according to recent projections by analysts. Rhode Island, like many states, would benefit from being able to use the CARES Act funds for revenue shortfalls. Legislators are expected to continue to work on the FY20 and FY21 budget during the first week in June. Though the State House remains closed to the public, members of the House and Senate Finance Committees are scheduled to meet there.

Speaker Nicholas Mattiello and Senate President Dominick Ruggerio announced they will wait until July to address the budget for FY21 with the hope that there will more clarity regarding additional federal relief for the states. Raimondo and legislative leaders have been in close contact with U.S. Sen. Jack Reed (D-RI)  regarding forthcoming federal assistance. Rhode Island lawmakers are expected to meet during the week of June 15 to take up the shortfall for FY20.

Vermont. On May 20, Gov. Phil Scott asked Vermont agency and department heads to cut their budgets for the first three months of FY21 by 8%. The Scott administration’s “skinny bill” proposed funding state government for the first three months of FY21, while the administration and lawmakers work to come up with a complete budget in August. According to the latest projections from the state’s fiscal analysts, revenues in FY21 are expected to fall by $374 million across all state funds because of the Covid-19 crisis—a drop of about 15%.

Exceptions to the plan included the Agency of Transportation, which spends heavily on projects during the summer and fall months. Scott would allow the agency to use up to 60% of the amount it received in this year’s budget between July and September. Also, education funding would be allowed to use up to 34% of its budget in the first three months.

On June 3, the House Appropriations Committee rejected the governor’s plan and passed a three-month budget funding state government at the same level as it did in the first quarter of this year. The committee’s rationale is to wait until the Legislature returns in August to work on the full budget to see where and how to cut. The full House approved the House Appropriations Committee’s recommendation and passed a budget adjustment bill which essentially level funds state government for the first three months of the new fiscal year, FY21.

Carolyn Morwick directs government and community relations at NEBHE and is former director of the Caucus of New England State Legislatures.

 

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