A new report from Ball State University suggests the COVID-19 pandemic may lead to cumulative lost local government tax revenues ranging between $218 million and $315 million.
The report said local government tax revenues for 2020 were expected to be stagnant even before the outbreak led to a shutdown of the economy to slow the spread of the virus.
“Preliminary Fiscal Effects of COVID-19 on Indiana’s Local Tax Revenues,” a report by Ball State’s Center for Business and Economic Research (CBER), offers estimates of the potential COVID-19 impacts on local budgets under two scenarios. The report breaks tax losses on a county-by-county basis.
“We have been observing and participating in economic estimates of the impact of COVID-19 since January,” said Michael Hicks, Ball State economist and CBER director. “The only consistent observation over this period is that every projection has worsened following later analysis.
Hicks said one scenario in the report suggests a return to normalcy and baseline economic conditions in the second half of 2020.
“Scenario two is more likely, suggesting continued economic performance well below baseline through 2020,” he said. “This forecast is for a three-quarter recession that is greater than any in the post-war period (but) this too might be optimistic.”
In both BSU scenarios, local income taxes drop significantly. In scenario one, the study projects a loss of roughly $218.4 million in total local option income taxes. In the second, the loss in local income taxes could be $315.4 million.
Local governments across the state derive 87% of their revenues from property taxes, local income taxes, state aid to schools, and state aid for roads.
Scenario one paints a mild disruption resulting from a negative-17.2% annualized GDP decline in one month of first and second quarters, followed by a return to 2019 levels of economic activity in the second half of the year.
For all other taxes (food and beverage, innkeeper’s, and gaming) the scenario assumes a 90% reduction for the four-month period, followed by a return to baseline in the second half of 2020.
Scenario two is more bleak, which combines the first and second quarter declines from scenario one with a continued lower level of economic activity through the remainder of 2020, with GDP averaging 4% lower than baseline for each of the last two quarters of the year, BSU said.
For all other taxes (food and beverage, Innkeeper’s, and gaming), researchers project a 90% reduction for the four-month period, and a return to 60% of baseline for the second half of 2020.
Hicks said there are some limitations to the report.
“This forecast does not deal with property taxes, which should statutorily be unaffected in the short run,” he said. “However, the ability of taxing bodies to collect expected revenues from property taxpayers is questionable, given the reductions in the level of economic activity over the coming weeks.”
Hicks said the impact of the recently passed federal aid programs is also not included in the BSU analysis. These programs may mitigate the negative effects of COVID-19 on local revenue.
He added the report is an analysis of revenues, not of expenditures. Some costs, including student transportation or public safety may be lower in 2020 than in 2019, while other expenditures may be significantly higher.
