/More gray than red vs blue when it comes to states’ need for federal funds to fill budget shortfalls

More gray than red vs blue when it comes to states’ need for federal funds to fill budget shortfalls

Funds would be needed to offset the expected drop in tax collections by state and local governments due to the coronavirus-induced slowdown. State and local governments without federal assistance could have to make drastic budget cuts. This would cause a sharp drop in tax collections for state and local governments. It would also result in teacher and government worker layoffs. Citizens will lose services when they are most needed. Trump appeared to have second thoughts a few days later. Trump tweeted, “Why should Americans and taxpayers bail out poor-run states (like Illinois) and cities in all cases Democrat-run and managed when the majority of other states aren’t looking for bailout assistance?” “I am open to discussing any topic, but I just ask.” Gov. Tate Reeves seemed a proponent of the red state (Republican), versus blue state (Democratic). He said that he had heard governors in blue states spend a lot time discussing the possibility of their governments, especially state governments, going bankrupt. “I don’t believe Mississippi is in this position. It may be necessary to tighten our belts. He said, “We are used to doing this.” However, he acknowledged that there would be significant revenue losses and that he supported federal assistance to address budget deficits. Preliminary data shows that Mississippi’s tax collection was $240 million less than the projections for April. It is probable that the governor will have to dip into the rainy-day fund in order to make it to the end of the fiscal calendar year, which ends on June 30. You might also want to note that Mississippi receives more federal aid than other states, in both good and bad economic times. The Rockefeller Institute in New York found that Mississippi receives $2.01 in federal assistance for every $1 it citizens pay in U.S. tax. Only Virginia, which is home to a large percentage of the federal workforce, Kentucky (Senator Majority Leader Mitch McConnell), Alabama, West Virginia, and New Mexico receive a higher return on their tax dollars than Mississippi. Many blue states like New York, Massachusetts and New Jersey get less than $1 for every $1 sent to Washington. Illinois is the most poorly-run blue state, sending in $1 and getting a dollar back. These states may claim they don’t need the same help as Mississippi, but they might be wrong. Mississippi is home to a high proportion of the poor, and receives more federal aid. Many believe this is how government should work. Reeves, along with other state leaders, know that the economic slowdown will have an impact on Mississippi’s state government and local governments. Shari Veazey (executive director of the Mississippi Municipal League) stated that “our municipalities are heavily dependent upon sales tax revenue…I expect they will see drastic reductions.” Many cities such as Oxford and Tupelo are already making cuts. The two biggest sources of revenue for Mississippi’s state government are sales and income taxes. This is expected to impact the state’s finances. Reeves pointed out recently that casinos typically generate between $10 million to $15 million per month in state revenue. The casinos are now closed. Is it possible to believe that business will resume as normal when they reopen? Many people will be hesitant to return due to the coronavirus, while others will not return because they don’t have enough money to gamble. Mississippi suffered a two-year, unprecedented decline in its revenue during the 2008 Great Recession. The state had only experienced one other year in which revenues were lower than the previous year, prior to the 2009-10 reductions. There are no records for years before 1970. Mississippi received $1 billion in federal funding to fill budget gaps during the Great Recession, but still faced large budget cuts. Many believe that the current economic downturn could get worse. According to the Center for Budget and Policy Priorities, state revenues could fall by $650 billion over a three-year time period (cumulative in both blue and red states), compared with the $690 billion drop over a five year period during the Great Recession. States, including Mississippi, could be in the red if that is true.