States turn to cash reserves as coronavirus strains budgets

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Washington Gov. Jay Inslee speaks to the media after the Legislature adjourned its 60-day session, Thursday, March 12, 2020, in Olympia, Wash. State lawmakers passed a supplemental budget with funding for the state’s response to COVID-19. (AP Photo/Rachel La Corte)

JEFFERSON CITY, Mo (AP) – States across the U.S. are allocating hundreds of millions of dollars to respond to the coronavirus, even as the U.S. government prepares to send billions more their way.

Many states have built up sizable stockpiles in their “rainy day” funds during several robust years of tax collections. Some governors and state lawmakers now are tapping into those savings for emergency expenses. Others are looking to set aside even more in reserve, fearing the economic uncertainties stemming from the coronavirus could send tax revenues into a tailspin.

“Forget the closure on Broadway – the loss of revenue to the state government, right now, is incalculable,” said New York Gov. Andrew Cuomo, a Democrat.

New York Governor Andrew Cuomo speaks during a news conference at a COVID-19 coronavirus infection testing facility at Glen Island Park, Friday, March 13, 2020, in New Rochelle, N.Y. State officials have set up a “containment area” in the New York City suburb, where schools and houses of worship are closed within a 1-mile radius of a point near a synagogue where an infected person with coronavirus had attended events. State officials stress it is not a lockdown. The vast majority of people recover from the new coronavirus. According to the World Health Organization, most people recover in about two to six weeks, depending on the severity of the illness. (AP Photo/John Minchillo)

He pulled the curtain on Broadway theaters this past week while banning gatherings of 500 or more people.

President Donald Trump said Friday that he would free up as much as $50 billion for state and local governments as he declared the virus pandemic a national emergency. Many governors also have declared emergencies, giving themselves greater flexibility to spend money and waive regulations as needed.

“All the resources we can have on hand – to make sure if things get worse – we want,” said Missouri Gov. Mike Parson, a Republican, while announcing a state of emergency just hours after the president did so.

For most people, the new coronavirus causes only mild or moderate symptoms, such as fever and cough. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia.

State and local public health agencies have been on the front lines of the response, monitoring and testing those suspected of having the virus that causes the COVID-19 disease. Costs are mounting for staff time and medical supplies.

But states also are bracing for a potential ripple effect on their revenues. The cancellation of major sporting and entertainment events could mean less tax revenue from tourists and local residents.

A sign announcing the suspension of all Broadway shows is posted on a door at the Minskoff Theatre, where “The Lion King” had been playing, Thursday, March 12, 2020, in New York. Gov. Andrew Cuomo banned gatherings of more than 500 people. (AP Photo/Kathy Willens)

Directives to work and study at home instead of at offices, schools and colleges could mean less revenue from fuel taxes and public transit fares.

And if some employees can’t go to work, that could put a damper on state income and withholding taxes while driving up spending for public welfare programs such as unemployment insurance and state Medicaid health care programs.

“It definitely has the potential to have a significant impact on state budgets – both on the spending and revenue side,” said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers.

“One positive, if you want to use that word, is that this is coming after a period where states have seen strong revenue growth for the past couple of years … and have been able to increase the size of their rainy day funds and reserves,” Sigritz added.

Across all states last fiscal year, the median rainy day fund balance equaled 7.6% of general fund expenditures. That’s a record high that was way up from a 1.6% share of general fund expenditures in the 2010 fiscal year, according to the budget officers group.

In Washington state, which has seen the greatest number of U.S. coronavirus deaths, lawmakers this past week approved a budget that draws $200 million from the state’s rainy day fund. Of that, $175 million is to go to the public health system with the rest going to a special unemployment fund for affected businesses and workers.

“The urgency of this is clear, the demand for action is clear, and we’ll stretch this as far as we can and we’ll find some way to finance more if we have to,” said Washington Gov. Jay Inslee, a Democrat.

While tapping the emergency fund, Washington state lawmakers also pared back some proposed spending, allowing the state’s reserves to continue to grow in case the coronavirus causes more budgetary hardships.

Georgia lawmakers this past week approved shifting $100 million from the state’s $2.8 billion of reserves into a governor’s emergency fund for the coronavirus. Maryland Gov. Larry Hogan, a Republican, signed legislation allowing the state to tap up to $50 million from its rainy day fund.

The spread of the coronavirus has coincided with crunch time in some state legislatures.

Florida lawmakers, for example, extended their 60-day session that was scheduled to end Friday while working on a budget plan that has been complicated by the coronavirus outbreak.

Concern about the economy has prompted budget writers to consider adding hundreds of millions of additional dollars to the state’s reserves to help offset any potential shortfalls.

Some states where legislatures already had wrapped up budgets are now scrambling to account for the coronavirus costs.

New Mexico lawmakers adjourned Feb. 20. This past week, Democratic Gov. Michelle Lujan Grisham vetoed about $150 million in infrastructure spending as coronavirus concerns caused world oil prices to plunge. The oil sector is a mainstay of the New Mexico economy.

In this Wednesday, March 11, 2020, photo New Mexico Gov. Michelle Lujan Grisham, right, announces a public health emergency in response to the state’s first positive tests for COVID-19, at a news conference in Santa Fe, N.M., also attended by Human Services Secretary David Scrase, left. Her administration has banned many gatherings of 100 or more people at spaces such as auditoriums and stadiums as a precaution against the spread of coronavirus. (AP Photo/Morgan Lee)

The cuts included nearly $50 million for local transportation projects plus funding for a rural water system, a preschool and senior center at Native American communities, and improvements at district courts.

Copyright 2020 Nexstar Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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