The States of Depression

Update 430 — The States of Depression:
Following the Economic Curves and Crashes

As the coronavirus sweeps across the country, spawning hotspots and chaos, it leaves in its wake a trail of economic destruction and ripples out to the most remote places, as yet untouched by the virus. 

Now that the economic shutdown is national and in place long enough, we can see which states have felt the economic brunt and to what degree, which ones must brace for it, and the rare few spared the worst repercussions. 

We examine economic conditions in seven states in different viral stages and circumstances below. 

Best,

Dana

———-

The on-the-ground economic picture(s), given the health crisis that is now emerging from states and localities, has immediately strained state governments. Most states face severe budget shortfalls as commerce grinds to a halt. State services will likely be slashed over the coming fiscal years, most of which start on July 1. The $3.8 trillion municipal bond market is frozen. 

Not all state responses to the crisis have been equal. Here, we look at states facing differing circumstances as case studies for clarity.

States in Peril

States’ unemployment insurance systems are struggling to keep up with the surge in claimants. Laid-off workers who lose their employer-provided health insurance may enroll in Medicaid, further straining state budgets.

States with high numbers of coronavirus cases need additional funds for hospitals and personal protective equipment. The CARES Act appropriated $150 billion for states and localities to use for coronavirus-related expenses, but this is far from enough.

With most businesses closed and consumer activity decimated, states are collecting less revenue from sales taxes. As more people are furloughed or laid off, states lose revenue from income tax withholdings. Per the Center on Budget and Policy Priorities (CBPP), states could lose up to 27 percent of their general funds for FY2021. Congress needs to provide funding to fill the craters in state budgets.

Hardest Hit 

  • New York

New York alone leads the world in confirmed coronavirus cases. The death toll passed 10,000 over the weekend after the state revised its numbers to include probable deaths.

Governor Andrew Cuomo has been critical of the federal government’s response. The initial $30 billion of the Coronavirus Relief Fund, which determines funds by 2019 Medicare reimbursements, will provide New York with $12,000 per case, while giving more than $300,000 per case to Minnesota, Nebraska, and Montana. New York officials are hoping more federal aid can help shore-up state revenues, which could drop by over $15 billion.

Hit Hard but Less Covered

  • Louisiana

Louisiana has the third-worst coronavirus outbreak in the nation. This may be due to the state’s above-average incidence of chronic diseases like diabetes, and the Carnival celebrations that continued through February. 

The state is not in sound fiscal shape. In March, CBPP reported that Louisiana was one of the least prepared states to weather a recession. Louisiana’s budget reserves account for just four percent of its general fund. Louisiana is also particularly vulnerable to downturns in oil prices, basing its budget projections on oil selling at almost $60 a barrel. With the price now hovering around $20 a barrel, the budget could fall by $400 million.

  • Michigan

Despite the severity of Michigan’s outbreak, Governor Gretchen Whitmer issued a stay at home order at nearly the same time as the governors of Indiana and Ohio, which are experiencing far less severe outbreaks. Michigan’s public health crisis has also turned into a serious economic crisis. 

Michigan is reporting some of the worst unemployment figures in the nation with over 25 percent of its workforce filing for benefits. The influx of claims crashed the state’s UI system on Monday even as the state has shifted workers to process claims. The state built a $1.2 billion rainy day fund, but it could experience budget shortfalls of $3 billion from the crisis.

States Avoiding the Worst Thus Far

  • California

While California was one of the first epicenters for the virus in the nation, swift action has kept corona-related deaths comparatively low. Undoubtedly helpful was Governor Gavin Newsom’s state-wide shelter in place order on March 19, which was the first in the nation. 

Yet California is not immune to the economic fallout. About 2.3 million Californians have filed for unemployment so far. On Sunday, the state sent out $336 million in UI benefits. But California is in robust fiscal health with $21 billion in reserves going into the year, ten percent of the Governor’s proposed budget in January. Newsom announced yesterday that his office is building a plan for reopening the state but gave no timetable.

  • Texas

Governor Greg Abbott issued his state-wide stay at home order on April 2. The Texas economy has not fared well. The state’s comptroller announced last week that Texas is in a recession.

Texas had a rainy day fund of nearly $8 billion at the beginning of FY2020 to help cover budget shortfalls. But its economy is battling the pandemic and a historic drop in oil prices. The energy sector, which accounts for 10 to 15 percent of the state’s economy, has been hit particularly hard. Oil-field-services firms have cut payrolls by up to 25 percent. These firms may cut up to 100,000 jobs in Texas by year-end; the industry is now experiencing bankruptcies. Oil production is the fifth-largest source of revenue for the state’s budget.

Rural States Seeing Spikes

  • New Mexico

From Sunday to Monday, New Mexico’s coronavirus death toll rose by 55 percent — from 20 to 32 deaths. All of the deaths occurred in San Juan County, which includes part of the Navajo Nation. Over the weekend, the Navajo Nation reported 101 new coronavirus cases. About 25 percent of New Mexico’s positive coronavirus cases were Native Americans, who tend to be poorer and sicker than the general populace. Navajo Nation President Jonathan Nez expressed frustration with the slow delivery of funds to tribal communities.

More than 70,000 New Mexicans have filed for unemployment during the crisis. Food preparation workers have increased claims by 2,700 percent, the greatest increase among industries. With collapsing oil prices and increasing coronavirus-related expenses, New Mexico could face a budget shortfall of over $1 billion.

  • South Dakota

South Dakota is one of a handful of states, all with Republican governors, to not have a mandatory stay at home order. But more than 300 workers at a pork processing plant in Sioux Falls contracted the virus this past week. The plant, which employs over 3,000 workers and accounts for five percent of U.S. pork production, is now shuttered indefinitely. Should more major food suppliers face widespread coronavirus infections, their shutterings could devastate crucial food supply chains, worker finances, and health care systems. 

Help Wanted 

Ten governors, all but one of whom are Democrats, from coastal states have started forming pacts on when and how to dissolve shelter in place ordinances and restore normality to their states. But they can’t accomplish this alone. What governors need from the federal government is more state and local funding in the next coronavirus relief package and less eBay procurement bidding wars over ventilators. 

Congress should address state budget shortfalls, especially before we see jurisdictions halt more services, go into default, or declare bankruptcy. Last week, House Democrats proposed a $250 billion funding package for localities with fewer than 500,000 residents called the Coronavirus Community Relief Act. This is ripe for the Corona 4 package under negotiation. 

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