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Michigan Ranks Third For ‘Fiscal Shock’ From COVID Pandemic

July 28, 2020

Michigan ranks third among states in the degree of “fiscal shock” caused by the COVID-19 pandemic, according to a paper published today by the Council of State Governments (CSG).

CSG put the “combined fiscal shock” to the state, when compared as a percentage to the prior revenue forecast, at 21.4%.

Only Alaska (33.1%) and Wyoming (27.9%) ranked higher.

Next came Nevada, 20.2%; Idaho, 17.1%; then Hawaii, 16.7%.

States that rely heavily on amusement and energy tax revenues, such as Alaska (51% of state tax revenue), Wyoming (32%), New Mexico (21%) and Nevada (12%) are experiencing the greatest general fund revenue declines as a percentage because oil prices have plummeted.

Michigan also faces a significant expected increase in Medicaid expenditures as residents lose jobs and employer-based healthcare coverage.

Iowa, Arkansas, Mississippi, Arizona and Delaware are the states reporting the lowest overall percentage decline. This can be attributed to industry-specific mitigating factors.

Iowa and Delaware, for instance, have a high concentration of state GDP in the finance and insurance sector and a low concentration in the leisure and hospitality sector.

CSG estimated that states combined face an estimated $169-253 billion shortfall for the fiscal years ending in 2020 and 2021.

CSG, with support from the accounting firm KPMG LLP, examined near-term budget impacts, the economic risk of ongoing pandemic effects and shutdowns, the resiliency of states to respond and strategies for fiscal recovery.

The findings were released Friday in a report titled “COVID-19: Fiscal Impact to States and Strategies for Recovery.”

“The effects of the pandemic have disrupted every aspect of state government and created unprecedented budget challenges for the states,” CSG Executive Director and CEO David Adkins said. “The road to recovery for each state is daunting, requiring customized and tailored solutions in response to each state’s unique circumstances.”

The report aims to help states understand the continuing economic risk associated with the COVID-19 pandemic, analyze resiliency factors and explore strategies to recover from the unique challenges of the pandemic.

“While the rainy day reserves of the states were at record highs at the beginning of 2020, those funds have been quickly depleted as a result of precipitous declines in tax revenues and new demands for unbudgeted expenditures,” Adkins said.

Initial estimates conclude that U.S. growth may take beyond 2024 to reach 2019 levels.

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