A new study from Ball State University suggests it may take more than a year for Indiana state and local government revenue streams to recover from the COVID-19 pandemic.
COVID-19 Effects on Indiana’s State and Local Taxes, an analysis by Ball State’s Center for Business and Economic Research, found that the economic shutdown caused by the crisis has deeply damaged the state’s economy. The study estimates state and local governments are facing tax revenue losses ranging between $240 million and $700 million in 2020.
The Ball State report projects tax revenues will rebound by the end of 2021 but remain below 2019 levels anywhere between $39 million and $559 million.
“Our scenarios reflect a state that will not fully recover from this pandemic before 2022, if not much longer,” said Michael Hicks, CBER director who conducted the study with Dagney Faulk, CBER research director, and Srikant Devaraj, a CBER research professor. “These estimates are for a deep and lengthy downturn, and each of our scenarios are among the seven worst since the start of the Great Depression.”
The Ball State report estimated the pandemic’s impact on Indiana state sales tax, personal and corporate income tax, and other tax revenues. For 2020, researchers expect tax losses to range between 3.8% and 10.9% of 2019 total revenues for the state.
In 2021, the study anticipates tax revenues will range between 0.7% and 9.4% below 2019 levels.
“While we generally anticipate improved economic conditions in 2021, our most optimistic scenario places GDP at only 2% above that of 2019,” Hicks said. “Our most pessimistic scenario considers GDP in 2021 at 2% beneath the 2019 level.”
Compared to the state, county-level tax losses comprise a smaller share of total revenues, ranging between losses of 2.4% and 6.8% in 2020 and between 0.4% and 5.8% losses in 2021. In 2020, the report anticipates county-level revenue losses could range from less than 1% of total tax revenue to more than 48%.
Hicks said the wide range in anticipated tax losses for local governments can be attributed to variations in local economic structures, with a higher share of employment in the most “at-risk” sectors of recreation, eating and drinking establishments, and accommodations.
Gov. Eric Holcomb on May 22 asked the State Budget Agency to reduce appropriations to state agencies by 15% for its 2020 fiscal year because of the sharp drop in April’s reported state revenues and to prepare for a continued decline in state revenues because of the economic impact of COVID-19. The state announced May 8 April tax collections fell $964.2 million or 43.9% when compared to tax collections in April 2019.