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States’ tax revenues dropped over 6% since pandemic: Study

Yahoo Finance’s Kristin Myers joins Zack Guzman to discuss how shortfalls in tax revenues are leaving states to face layoffs and service cuts.

Video Transcript

ZACK GUZMAN: I want to shift the focus over to what we're seeing play out in the public sector as well, because it's not just restaurants in some of these private sectors impacted by the pandemic. But as we see tax revenues continue to fall at the state and local level, there's a lot of issues about jobs being cut in the public sector here. And for more on that, I want to bring on Yahoo Finance's Kristin Myers, who has more details on that. Kristin?

KRISTIN MYERS: Hey, Zack. So yeah, as you were mentioning, a lot of states essentially are having huge shortfalls in their budgets because tax revenues have been on the decline, especially as some businesses close. Economic activity has been declining over the last couple of months.

So the Urban Institute actually went and checked out each state's tax revenue for the last couple of months. And what they found was that 46 states, so almost the entire country, showed a combined revenue drop of nearly $30 billion, Zack. And now that's just compared to the same stretch of time as last year.

CBPP, that's the Center on Budget and Policy Priorities, they also took a look at some of this data. And what they found was that state tax collections from March through July were nearly 8% less than those same months last year, so a pretty big decline that we are seeing there.

I do want to mention they are not as bad, however, as some of these states had been projecting. Some states had been projecting losses of over 11% for the first couple of months of the pandemic. But in normal times, if this was not a pandemic, right now, Zack, normally, tax collections would actually have grown from 2% to 3%. That was what they were projecting for those same months.

Now, as you were mentioning, it's not just restaurants, right, that is impacting this tax revenue declines, these economic activity declines. We're also seeing states that have a lot of oil or oil related industries because of plunging oil prices-- you know, you and I have discussed that on this show several times.

As we're seeing those oil prices decline, we're starting to see the tax revenue and the economic activity around oil, oil distribution also start to decline. So some states that essentially have a high concentration of oil businesses are really starting to suffer the most.

Just want to run through really quickly some state projections for everyone to kind of put this into context. In New York here, and also in Colorado, they're projecting that revenue is going to be declining by 17% or more. Here in New York, tax revenue is going to fall by $13 billion, Zack, in 2021 alone. That's according to the New York's Department of Finance. And it's going to fall by $16 billion in 2022.

California expecting revenues to decline by $32 billion in 2021 alone. So we are seeing massive declines across the board. Now why is this important when it comes to those stimulus talks and those stimulus negotiations? Well, as we've been discussing, stimulus is not just about that $1,200 paycheck that most Americans are going to get or that $600 unemployment enhancement.

It's also money that's going to the states and to cities to essentially keep up basic services that they give to all of their residents. Well, as a part of this package, which, right now, is still currently stalled, those negotiations, states and cities have gotten no help right now at all. And most of them have actually burned through all of the money that the federal government has given them.

And as a result, they're starting to look back at their budgets and they're saying, OK, what are we going to have to cut? What essential services are we going to have to reduce in order to make up some of these shortfalls? As a quick reminder for everyone, the White House did up their stimulus counterproposal to nearly $2 trillion, roughly $1.9 trillion. The Democrats were standing at $2.2 trillion.

Nancy Pelosi has said that she's hoping some sort of deal can get done in the coming days. But just as a reminder for everyone, it's not just House Democrats and the White House that are a part of this negotiation. Senate Republicans are also have a seat at this table as well, Zack.

And they're right now saying, listen, $2 trillion, huge price tag. They're not sure if they're going to be going with it. So we're going to have to see how much money states can get and cities can get in the coming weeks.