States are estimating that their revenue for fiscal 2021 will come in at least $350 billion lower than they had projected, said Erlinda Doherty, director of the budget and revenue committee for the National Conference of State Legislatures, at a panel discussion organized by the group and held by videoconference. She called that a conservative estimate, but said states would take advantage of the considerable reserves they have built up and then turn to making cuts before they raise taxes.
"We don't know of any states right now" that are planning tax increases, Doherty said.
Two state legislators joining her on the panel also said their states were looking at cuts but not tax increases at this time. Rhode Island Rep. Marvin Abney, D-Newport, who chairs the House Finance Committee, and Mississippi Sen. W. Briggs Hopson III, R-Vicksburg, who chairs the Senate Appropriations Committee, both said they were hoping for help from the federal government to stave off some of the cuts.
The legislators said they would like more flexibility in applying funds from the Coronavirus Aid, Relief and Economic Security Act , and were also hoping for another round of state aid. It is unclear, especially in light of a jobs report Friday that was better than expected, and the hopes of an improving economy, whether Congress will appropriate another package for states.
MultiState Associates, a state and local government relations company, also found it unlikely that states would seek to raise taxes, especially in the near term. In a report issued June 1, MultiState analyzed the behavior of the five most populous states — California, Texas, Florida, New York and Pennsylvania — after previous downturns in the economy. The firm looked at 2001 through 2003, and then 2007 through 2009, using data from the NCSL.
States enacted few new taxes immediately after downturns, the report found. Depending on politics, the states enacted some new taxes in the second or third years after a downturn, and following the third year ceased doing so.
States tended to wait almost a full calendar year before attempting to raise revenue through tax increases, especially through broad-based increases, Ryan Maness, senior policy analyst and tax counsel for MultiState, told Law360 Friday.
"We all sort of have this impression that after a recession, states are going to rush in and do something drastic," said Maness, who authored the report. "And that's just ultimately not what we found."
When they did raise taxes, states have tended to tax the margins, doing things such as raising fees and increasing taxes on gambling, tobacco and alcohol, Maness said. MultiState found only four increases of broad-based taxes: a temporary sales tax increase in California, a personal income tax increase in Pennsylvania, and a sales tax increase and a tax on high earners in New York.
MultiState did not find many instances of states using a downturn to raise taxes to further political agendas, Maness said of its research.
"It was much more, 'We're going to find the money in the most politically expedient way that we can,'" he said.
--Editing by Neil Cohen.
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