Running on Fumes: Impact of COVID-19 on County Finances

Nationwide, the COVID-19 pandemic has the potential to impact county budgets by over $144 billion through fiscal 2021.

Counties are making significant financial investments to address immediate public health and safety needs. At the same time, counties are experiencing massive and unprecedented declines in revenue as a result of the coronavirus pandemic.

The combined effect of these changes will likely undermine county revenue structures and support for education, public safety, roadway maintenance, and other essential services.

According to the National Association of Counties (NACo), the COVID-19 pandemic has the potential to impact county budgets by over $144 billion through fiscal 2021. An additional $54 billion in property tax revenue is at risk in states where counties have not yet collected any or all property tax revenue.

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This estimate includes anticipated increases in expenditures, lost sales tax revenue, lost revenue from charges and fees, lost business license tax revenue, and lost income tax revenue.

Large counties with over 500,000 residents would see the largest increase in expenditures and the largest decrease in revenue, amounting to an approximately $83 billion impact. Budgets for counties with less than 50,000 residents could be slashed by up to 24 percent.

These estimates are generally conservative because they do not take into account the amount of revenue that would be lost from property taxes should home prices and assessments decrease, nor do they take into account funding that states share with counties from sources like state sales or income taxes.

As previously reported on Conduit Street, Comptroller Peter Franchot outlined a potential shortfall of approximately $2.8 billion during the final quarter of fiscal 2020, which ends June 30. The economic impact represents a loss of nearly 15 percent to the state’s annual general fund.

In Maryland, excluding state grants, property and income taxes make up approximately 66% of county revenues.

The Comptroller estimates that the pandemic may result in a 22% decline in state and local income tax withholding in the final quarter of fiscal 20, which would have a significant impact on state and local revenues. Counties are also experiencing sharp declines in transfer/recordation, admissions and amusements, and hotel tax revenues.

A long-term economic slowdown could also damage the commercial and residential real estate markets, which would likely result in a meaningful drop in local property tax revenues.

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It should be noted that revenues are only one side of the state and local budget equation. While revenues are expected to decline during an economic downturn, residents’ need for government-supported healthcare and social services is expected to grow due to loss of jobs and health insurance. Furthermore, pension costs are expected to increase because of reduced investment returns.

Stay tuned to Conduit Street for more information.

Useful LInks

Previous Conduit Street Coverage: Comptroller Delivers Grim Economic Outlook Amid COVID-19 Crisis

NACo Issue Brief: Running on Fumes: Impact of COVID-19 on County Finances

Previous Conduit Street Coverage: Report: State and Local Governments Left Out of New Federal Aid Package

Previous Conduit Street Coverage: Counties to Congress: Help Needed Here, On Front Lines

Previous Conduit Street Coverage: MD CARES Plan: $364M, Split Between Local Health and Local Govts

Previous Conduit Street Coverage: Hogan Calls on Congress to Provide $500 Billion to Stabilize State Budgets