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The Fiscal Impact of COVID-19

"As I meet with each agency to review their appropriations requests, I will begin at ZERO. We will add restricted appropriations to that amount, and then examine each and every request before adding it to our base bill that I will file during session. The bill I file will adhere to both constitutional spending limits, as well as my depression-era parents' philosophy of "If you don't have it, you shouldn't spend it."

- Senator Jane Nelson, Senate Finance Committee Chair

The recession caused by COVID-19 is unlike other recessions experienced in our lifetime. The 2008 recession was caused by financial mismanagement and fraud, as was the 1999 dot com bubble. The 2001 recession was due to the 9/11 terrorist attacks. In each recession, the genesis was “man-made”, and the recovery was fairly quick once the underlying cause was removed, usually through economic policy changes. However, this recession does not have a man-made origin, and economic policy changes will only go so far. Until consumer confidence and spending returns, we may be in for a long-term recession. In a state like Texas where we are heavily dependent on sales and use taxes, maintaining consumer confidence should be a priority for policymakers.


14 states are currently projecting big shortfalls in state tax revenues. The following is a projection of the greatest year-over-year reduction in revenues by state. States are hit harder based upon where they get their revenues from. So those hit hardest will be the ones that get their money from restaurant taxes, hotel and occupancy taxes, sales taxes, and taxes on business income for entities that are currently closed.

MA: -54.2%

MO: -53.4% KS: -51.4% PA: -50.8% MT: -50.3% IL: -43.2% LA: -42.5% AL: -37.5% WV: -35.7% OH: -31.7% AR: -28.0% NH: -27.1% TX: -19.8% NC: -12.5%


Source: Urban Institute.



Groundgame Takeaway:

For organizations and industries doing business in Texas, it will be important to remember that the economic downturn has not only hit your business, but the business of the state in general. The legislature is likely to tap at least a large portion, if not all of, the state's rainy day fund which will top out at around $10 billion by the end of this year. But it won't be enough. There will be significant cuts across all state agencies to provide essential services to citizens.


While the cuts will be dramatic, they also represent an opportunity for potential state contractors. Very likely, the state will attempt to outsource traditionally government-provided services to the private sector and could provide a windfall to businesses ready and willing to fill the gaps.


Contact Salient Strategies for a free consultation on how to put your business in the best position leading into the next legislative session.


Quick Links

https://www.ncsl.org/research/fiscal-policy/coronavirus-covid-19-state-budget-updates-and-revenue-projections637208306.aspx - NCSL has compiled updated revenue estimates for all 50 states. (hint: it’s bad)


https://www.law360.com/tax-authority/articles/1258769/attachments/0 - Moody’s has updated their outlook on tax revenues. (hint: it’s also bad)


https://www.census.gov/retail/marts/www/marts_current.pdf - New data released by the Census Bureau shows that March retail sales dropped 8.7% from February.


https://comptroller.texas.gov/about/media-center/news/2020/200501-sales-tax.php - Texas sales tax revenue drops 9.3% in April 2020 from same month in 2019.


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