A fundamental disagreement over the latest COVID-19 relief plan centers on aid to states, cities and counties. Democrats plan to include about $350 billion in aid, and Republicans argue that not only is the money unnecessary, it’s just a way to reward to liberal states.
Sen. Rick Scott, R-Naples, said Democrats are lying about the need.
“States across the country are seeing increases in revenue — in some cases, well above projections,” Scott said in a Feb. 1 statement. “Now, we are learning that 47 states show an average decline of just 0.12 percent compared to 2019, and 21 of the 47 states show positive year over year growth of tax receipts. Over half of states reported positive growth, including California, New York, and Illinois.”
Is the revenue picture as rosy as Scott makes it out to be?
One study partially backs up Scott’s numbers, but he made some errors. Other compilations of state financial reports show the situation is worse than he presents. And if it weren’t for one state — California — the numbers would look even more dire.
Scott’s own state, Florida, was among the biggest revenue losers.
A bank’s view
Scott’s staff pointed to a J.P. Morgan weekly market report. The investment bank’s analysts aimed to give bond investors a sense of the ability of states to repay bonds. Scott drew on that work virtually word for word.
He accurately reflected the findings that 47 states show an average decline of just 0.12 percent compared with 2019, and 21 of 47 states show positive year-over-year growth in tax receipts. (The study had a full-year of data on 37 states, and 11 months for another 10.)
But Scott proceeded to muddle the numbers. After noting that revenues rose in 21 states, he then said “over half of states reported positive growth, including California, New York and Illinois.” Clearly, 21 is fewer than half of the 50 states.
The first statistic he cited in his claim — 21 — relates to total tax revenues. The second — half of states — relates to personal income taxes alone. Scott failed to note the difference.
The J.P. Morgan report said personal income tax revenues rose in over half of the states where it had data, including the three states Scott named. But in terms of total revenues, only California saw its numbers go up. New York was down 1.5 percent and Illinois was down 0.9 percent.
Half a dozen states suffered far deeper revenue drops. The worst hit include Nevada (-13 percent), North Dakota (-9.7 percent), Florida (-7.9 percent), Texas (-6.8 percent), West Virginia (-6.8 percent) and Oklahoma (-6.7 percent).
The J.P. Morgan report’s time frame bears a mention. It includes two full months in 2020 before the coronavirus cratered the economy. Other research gives a window into the virus’ fiscal impact in the pandemic months between March and December.
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The COVID-19 impact, and the California effect
Based on budget reports from 46 states, researcher Lucy Dadayan at the Urban Institute, an academic center in Washington, D.C., told us that from March through December, revenues from personal and corporate income taxes and sales taxes fell by 1.6 percent from the same period a year earlier.
That decline might seem small, but it is more than 10 times larger than the 0.12 percent Scott referred to.
In raw dollars, it represents $12.6 billion in lost revenue.
Aggregate numbers conceal as much as they reveal, and California was an outlier with a hefty effect on the overall numbers. Thanks to a variety of factors, including large year-end bonuses and massive tax withholding tied to initial stock offerings of companies like Airbnb, California’s revenues shot up 26.5 percent in December alone. That was enough to make the national picture look considerably better.
When Dadayan pulled the Golden State out of the equation, total revenues across the remaining states were down 2 percent. That’s 25 percent worse than when California was included.
There are other ways to measure the fiscal impact of COVID-19.
The National Association of State Budget Officers gets information from all 50 states, but those numbers are for fiscal, not calendar, years. In most cases, that runs from July through June.
The time frame is different, but the numbers are similar to Dadayan’s figures.
In their fiscal years that ended in 2020, states collected $14 billion less than the year before. And in their budgets for fiscal year 2021, states factored in an additional decline of $39 billion, for a total reduction of $53 billion over the two years.
Dadayan said that before the coronavirus, accounting for population and economic growth, states had planned on a rise of about 5 percent in revenues each year. The National Association of State Budget Officers said that compared with those pre-COVID-19 budget forecasts, revenues will be down by $135 billion.
To help close part of the gap, states drew down their emergency funds by $12.2 billion.
Looking beyond state revenues
Scott’s focus on how much money states are collecting leaves out half the fiscal picture — the spending side. In the face of falling revenues, states cut spending on schools, roads and many other areas. The National Association of State Budget Officers reported that education spending fell by $7.4 billion. Another $5.6 billion came from a range of programs, including public safety, the judiciary, environmental protection and aid to local governments.
Modest declines in state revenue can have more pronounced effects on county and city budgets that rely on state aid. The Democratic plan that Scott criticized would also send aid to cities and counties.
A survey of county officials during the summer found most counties were seeing budget shortfalls, and nearly three-quarters of them were holding back on capital spending and county services.
The National League of Cities reported that overall city revenues have fallen 21 percent since the start of the pandemic, while expenses have risen 17 percent.
Chicago alone reported a nearly $800 million general fund deficit at the end of August.
Dadayan said the focus on state revenues “misses the fiscal stress on local governments, which is a lot bigger compared to state revenue shortfalls.”
She added that cities are looking at budget gaps estimated at more than $90 billion.
Scott said states across the country are seeing increases in revenue with an average decline of just 0.12 percent compared with 2019. He also said that over half of states reported positive growth, including California, New York, and Illinois.
Scott faithfully reflects a report from J.P. Morgan in terms of the 0.12 percent overall decline, but he went astray when talking about states with higher revenues, particularly the three states he named. The J.P. Morgan report said revenues grew only in California. They fell in New York and Illinois.
Scott’s numbers included two months before the pandemic began. Focusing on the pandemic months of March through December, revenues fell about 10 times more than Scott said.
He also limited his view of fiscal health to state revenues. Factoring in spending cuts, and impacts on city and county finances, the picture is much worse.
Scott used a report that gave a limited view of a broader fiscal landscape, and misread an element in the report itself. The information he left out would leave a reader with a different impression. That matches our definition of Mostly False.