New Census Data Shows State/Local Revenue Loss from COVID Uneven and Less than Anticipated

New Census Data Shows State/Local Revenue Loss from COVID Uneven and Less than Anticipated

December 21, 2020  | Jeff Davis

New data from the Census Bureau released last week shows that the aggregate state and local tax revenue losses this year from COVID and related economic activity have not been nearly as bad as predicted in the spring, and that those losses are (a) mainly on the state side, not the local side, and (b) unevenly distributed between states.

Between January 1 and September 30 of this year, total state and local tax collections in the U.S. this year totaled $1.11 trillion – down only $7.6 billion, or 0.7 percent, from the same nine-month period in calendar year 2019.

All state and local tax revenue (Billion $$)
CY 2019 CY 2020 Delta
1Q 370.3 389.7 +19.5
2Q 411.1 324.5 -86.6
3Q 338.4 398.0 +59.6
9-mo 1,119.8 1,112.3 -7.6

The quarterly Census survey puts all state and local tax revenues in one of four buckets: property taxes, individual income taxes, corporate income taxes, and sales taxes (which includes excise taxes and use taxes). Property taxes held up most robustly under COVID and were actually up by almost $17 billion this year versus last year.

Since property taxes are almost exclusively levied by localities (not states), when combined with robust sales tax receipts, local governments saw their tax receipts increase by $29.8 billion over the first nine months of 2020, compared to the same period in 2019.

But many states rely on more volatile revenue sources, which means that total state tax receipts were down $37.4 billion over the first nine months of 2020.

Moreover, there is a huge variety between the states on how their 2020 tax revenues are comparing to last year. According to a Tax Foundation analysis of the largest Census data release, three states (Alaska, Connecticut, and North Dakota) have seen their tax receipts drop by over 20 percent since January 1, based on the comparable nine-month period in 2019. Hawaii, Iowa, Massachusetts, Michigan, New Mexico, and Washington State have seen double-digit percentage drops in their tax receipts versus last year as well.

But other states have only shown de minimis drops in revenue, and twelve states – Alabama, Arkansas, Georgia, Idaho, Illinois, Kentucky, Maine, Montana, Nebraska, North Carolina, Tennessee and Vermont – have actually taken in more tax money in the first nine months of 2020 than they did in 2019.

Back in March, the CARES Act provided $139 billion in fiscal relief to states (and thence to larger cities and counties within states), based largely on population. Use of that money was limited to unanticipated COVID-related expenses incurred between March 1 and December 31, 2020. (One can see how the states and localities spend that money here.) Subsequently to CARES, there were cries for additional aid to state and local governments based on not just unanticipated expenses but to lost tax revenue as well, and subsequent Democratic bills proposed hundreds of billions of dollars based on these assumed revenue losses.

The reality is that, if states and cities are to be made whole for actual revenue losses, some states and cities wont get any money, since they haven’t had any revenue losses. (Yet.)

With regards to specific transportation taxes, the Census data only tracks that on the state level. State motor fuel tax receipts for the first nine months of 2020 were down by $2.5 billion (-6.3 percent) compared to their 2019 levels.

State motor fuel tax receipts (Billion $$)
CY 2019 CY 2020 Delta
1Q 12.2 12.9 0.6
2Q 14.0 11.5 -2.6
3Q 13.3 12.7 -0.5
9-mo 39.6 37.1 -2.5

State vehicle and operator license revenues, which are also often used by states to fund transportation, were down $1.0 billion this year, or -3.9 percent.

State motor vehicle & operators license (Billion $$)
CY 2019 CY 2020 Delta
1Q 8.1 8.2 0.1
2Q 8.7 7.1 -1.6
3Q 8.0 8.5 0.5
9-mo 24.9 23.9 -1.0

Funding provided in the new COVID relief bill for state highway programs, under the justification of replacing state highway fund revenues lost to COVID, are expected to be several times higher than the $3.5 billion total of actual losses so far shown above.

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