Tuesday, December 29, 2020

As CARES money goes away, how will Wisconsin handle the costs of the COVID World?

As 2020 finally draws to a close, it also means that states like Wisconsin have to set aside all of the money it received under the CARES Act this Spring. Wisconsin got nearly $2 billion in aid, which went through Tony Evers' Department of Administration, but it has to be "expended or obligated" by tomorrow.

With that in mind, the Legislative Fiscal Bureau recently gave an update on where Wisconsin stands on these CARES funds, and told legislators what had been added or modified since October.
In a release dated December 15, 2020, the Administration reported that it expects to have expended or obligated nearly the full amount of the state's CRF allocation by December 30, 2020. Approximately $900,000 remains unallocated at this time. The table below summarizes the planned uses of the CRF allocation, as well as the reallocations from previously-reported initiatives.
You can see that the Evers Administration used $242 million of those funds for grants to businesses, including finds earmarked for restaurants, lodging establishments, live music and arts venues, and movie theatres. Which is a good thing, because while the new stimulus package from DC gave $15 billion to music venues, cinemas and museum, there was only a reduced amount of PPP assistance made available for other types of businesses.

As for other aids, states did get some help for COVID testing and treatment, and additional funds for education, roads, transit and child care. But it didn't have CARES-like direct asssistance to states that allowed for state-generated programs like Evers' funds to small businesses or added payments to hospitals and long-term care facilities. But those extra costs and needs won't go away with the start of the year, which means that there will be a question as to how that level of services is going to continue.

At the same time that some Federal help is being reduced, there is a continued decline in Wisconsin's state income taxes, as shown by figures released by the Wisconsin Department of Revenue earlier this month. However, a continued rise in the collection of corporate taxes (partly due to increased audits of businesses by the DOR) continues to make up for it.

Change in Wisconsin revenues, Nov 2020 vs Nov 2019
Individual Income Taxes (adj) -6.0%
Sales Taxes +0.2%
Corporate Taxes +324.4% ($157 mil vs $37 mil)
Excise Taxes -4.2%
Other -4.8%

Wisconsin reflects the national trend, as federal income taxes also were lower in November 2020 vs November 2019, according to the most recent Treasury Statement. They were down 11.3% for November and 12.8% between October and November combined, which shows what a jobs and wages hole we are still in.

Given the rise in unemployment claims since the time of the November survey, I don’t see this revenue picture getting much better, although the temporary restoration of higher unemployment benefits (which get taxed) might at least keep the decline from getting larger during our COVID Winter.

So while the Federal help in 2020 has given the State of Wisconsin a lot of stability and fiscal cushion at this point, the loss of those items in 2021 means that the state's fiscal and economic situations can become more perilous. Then forecast ahead to job and fiscal deficits that may well exist for the next 2-year budget cycle, and a crunch could come quite quickly.

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