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Political Note #347. The Financial State of the States
2020 General Election Getting Ready to Govern
Mitch McConnell has opposed coronavirus relief to the states. He claims the money would be a Bail out to Blue States. Blue states, he says, are profligate. His example of profligacy is the commitment of Blue states to pensions for their retired employees.
McConnell has supported relief bills so far. Here’s what Congress has done to support the economy
Phase 1 passed in early March, 2020 was $8 Billion to support coronavirus vaccine research.
Phase 2 passed in mid-March, 2020 was $100 Billion to support free coronavirus testing, paid sick leave and emergency medical leave, expansion of unemployment benefits, plus additional funds for various Departments
Phase 3 passed at the end of March, 2020 was $2.2 Trillion which included 1) Relief to healthcare providers, manufacturers and distributors, 2) Relief to businesses and organizations including the Paycheck Protection Program, 3) Relief to individuals including tax changes, unemployment benefits, among which were the $600 supplemental unemployment payments, funds targeting students, retirement plan changes, and the eviction moratorium, 4) Relief to defense contractors, 5) funds for the postal service.
Phase 4. Congress, including Mitch McConnell, has just agreed on another stimulus bill costing $900 Billion. The agreement includes 1) Stimulus checks for individuals, 2) unemployment supplementary payments, 3) Extensions of expiring economic aid programs, 4) additional Paycheck Protection Loans/Grants, 5) funds to support Covid vaccinations and contact tracing, 6) funds for education, transportation, and more. 7) Changes in the authority of the Fed to make loans to states and corporations.
Democrats and Republicans have agreed to leave liability protection for employers and relief payments for states for a later conversation. Those are the same relief payments that generate Mitch McConnell’s complaints about profligacy and a Blue State Bailout,
Considering Mitch McConnell’s complaint, I looked at Truth in Accounting. That organization pays particular attention to Mitch McConnell’s complaint about the fiscal recklessness of some (or even most) states regarding pension obligations. They create a chart for each state to note whether the state has prepared itself to pay its future obligations, the largest of which are the pensions. They give states a letter grade, a rank from one to 50 for its financial condition, and a calculation of each state’s financial burden or capacity for individual taxpayers.
Alaska is ranked #1. It has $21 Billion to pay future bills. Truth in Accounting calculated that Alaska has in hand $77,400 for each taxpayer. They give Alaska an A rating. New Jersey is ranked #50. It has an $189.9 Billion deficit in its capacity to pay future bills which would cost $57,900 per taxpayer. New Jersey gets an F from Truth in Accounting.
Massachusetts is ranked 46, Hawaii 47, Connecticut 48, and Illinois 49. In contrast, Tennessee is ranked 5, Utah 4, Wyoming 3, and North Dakota 2. Mitch McConnell would point out that this looks like a Blue State problem. The Truth in Accounting people and Mitch McConnell may be right to describe the high-ranking states as unprepared to pay for the pensions they have promised. When I went to work as a school superintendent in Massachusetts, my colleagues and I were assured that the people and legislators of the state understood that pensions were to be paid, in part, out of future taxation. Is that profligacy? Do New Jersey, Illinois, Connecticut, Hawaii, and Massachusetts spend without regard for their income. Their budgets, like the budgets of all states, are balanced. They pay their bills. Preparedness to pay for pensions in the future is something worth talking about. It is not a basis for calculating coronavirus aid to states. Pensions are not profligate; they are not a waste of resources.
Congress has provided and should provide financial relief to help those who need it, to ensure a stronger economy, and to get us through the coronavirus crisis. States that have lost revenue will lay off employees and reduce services. Congressional relief should target states that have lost revenue – to strengthen the economy of the states that have lost revenue, to avoid making states lay off employees and reduce services. The coronavirus is a natural disaster – like a hurricane or tornado, but affecting the entire nation over an extended period of time. States need funds to cope with the crisis and to make up for the revenue they have lost. Lost revenue is the right criterion for considering financial relief to states as well as the funds needed by every state for coping with the disaster. The states’ pension obligations are irrelevant to this problem.
Some in government (Mitch McConnell is one under some circumstances) don’t want the government to reward bad behavior with government support. Differential handling of the coronavirus might be a factor in lost revenue for some states in 2020, but it is not the most important factor. The most important factors were outside of immediate state control – the nature of the state’s economy or of the state’s tax system. States that, a few years ago, decided to capture sales tax revenues from internet sales, for instance, had substantial gains in sales tax revenue from the internet as people shifted their buying habits from local stores to online purchases.
Early in the pandemic, Truth in Accounting projected revenue loss for each state. The calculations were rough – $1 billion, $2 billion, up to $32 billion. Divide those figures per person for each state, you can see which states were thought likely to lose the most revenue. The biggest losers, as projected by Truth in Accounting were Alaska, North Dakota, Delaware, Connecticut, and Hawaii. The states they projected to lose the least were California, Idaho, New Hampshire, Missouri, and Alabama. Truth in Accounting’s projections did not find differences between Blue States and Red States.
However, Truth in Accounting, like most of those in the business, were wrong in their projections. Emily Badger, Alicia Parlapiano, and Quoctrung Bui wrote in New York Times’ Upshot column that some states projected to lose considerable revenue did not. States with progressive tax systems, with prosperous citizens who continued to work from home, and with wealthy citizens who earned from the stock market continued to collect taxes at past levels. The bail-outs also made a difference for state revenue. The unemployed, low-income workers, and those whose jobs were saved by the Paycheck Protection Program were able to buy things and pay sales taxes.
The big losers of tax revenue in 2020 turn out to be Hawaii, Wyoming, Oregon, Florida, and Nevada. Tourism is way down because of the coronavirus — affecting Hawaii, Florida, and Nevada. Wyoming’s revenues are down because much of its revenue comes from mining and drilling. Oregon’s decline may be an artifact of the state having delayed its tax deadline. The local press reports increased revenue in Oregon. The gainers in tax revenue include Red State Idaho, South Dakota, and Utah; Blue State Vermont and New Mexico. Whatever the reasons for those gains, we are not talking about differentials between Red States and Blues States. Revenue loss may be different in 2021. The problem is almost certainly a multi-year problem. Solutions need to respond to annual changes.
Relief to states will not be voted on until the next Congress. We may then have a better understanding of the expenses borne and tax losses experienced by various states. Mitch McConnell complaining about bailing out Blue States is distracting us from examining a problem and solving it.
We need a rational way to consider how to respond to state revenue losses – not to punish or reward, but to ensure that our economy is sustained. Not for one year, but for a few. Ideology and slogans gets in the way. We will certainly be better off if the two Democrats win in Georgia in January. Mitch McConnell’s voice will not be as loud. Win or lose, the solution should not be partisan. A solution that helps Florida, Hawaii, Nevada, and Wyoming is not bailing out Blue States or Red States. These funds are not Christmas presents. Funds to replace lost revenue and to help states deal with the disaster they are living with are (or at least it should be) intended to help the American economy.
