State Revenues Expected To Drop Significantly
The state of Maine saw revenues in March come in below estimates by $4.7 million, but that’s a small fraction of the decline they expect to see going forward because of the pandemic.
The lower March revenues, state officials say, are due in part to the fact more people filed earlier for income tax refunds than had been projected. But based on revenues at the end of March and thus far in April, they foresee a severe recession.
“May revenues reflect April activity is when we will see the full brunt of the crisis.”
Mike Allen, Maine’s Associate Commissioner for Tax Policy, says state law requires a type of computer modeling — called a stress test — to estimate state revenue losses in times of recession. The latest test has estimated that Maine could lose more $700 million in revenues in a year.
But Allen points out that the test was based on the assumption of a recession caused by economic factors, not by a pandemic.
“It just got shut down overnight, so it has taken a little bit of time to see the impact of it on revenue, as opposed to back in the great recession, you could see it month after month.”
Allen says the thousands of layoffs and business closings in the past few weeks have translated to a drop in income tax withholding in April that is expected to continue. He says unemployment benefits, which are taxable, and the federal stimulus checks will help keep the economy from being hit as hard as it was in the 2007-2009 recession. And he says Maine also had a much stronger economy going into this sudden downturn.
“Maine had, I think, the eighteenth best personal income growth in the country in 2019. We had the best in New England. We had a strong, vibrant economy and were doing well.”
Allen says the state does have a rainy day fund to help offset lost revenue and that Congress has provided some financial assistance to the states. He says how quickly Maine’s economy and revenues can bounce back will depend on what additional help comes from Congress and how quickly the pandemic recedes. He says both the Economic Forecasting Commission and the Revenue Forecasting Committee will meet in a few months to adjust their assessments.