Pa. tax revenues plummet $2.2 billion as top state official warns reopening won’t end economic pain

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HARRISBURG — Pennsylvania’s tax revenues nosedived $2.2 billion in April, falling 50% below official estimates, according to figures released Friday by the state Department of Revenue.

The majority of the shortfall is due to the three-month extension of the deadline for filing personal income taxes, which means that almost $2 billion that is usually collected in April will not flow into the state’s coffers until July.

But roughly $400 million is the direct fallout from the economic slowdown caused by the coronavirus outbreak, Revenue Secretary C. Daniel Hassell said, a drop of roughly 10% that represents “a significant shortfall all by itself." Revenue declines will only increase as summer approaches, Hassell said.

“This is by no means over even once we get to the point where businesses are allowed to reopen in the coming weeks,” he said.

The new numbers offer the starkest picture yet of the damage inflicted on the state’s finances by the outbreak, adding a looming budget deficit to the list of pressing issues Gov. Tom Wolf and lawmakers must address in the next two months.

Tax collections for the current fiscal year, which ends June 30, are now 7.4% below estimate.

The revenue slump is part of an increasingly gloomy economic picture. Businesses have been closed for weeks. Economic relief programs have been overwhelmed by demand. Pennsylvanians are filing for unemployment in record numbers, straining the state’s system.

As a result, sales and income tax receipts, the largest sources of tax revenue, are dramatically lower than anticipated. Personal income taxes withheld from employees’ paychecks dropped $100 million below estimate and sales taxes came in $215 million lower than anticipated because of reduced economic activity.

Congress has not offered unrestricted aid to the states to fill those budget gaps, leaving open the need for dramatic cuts.

Pennsylvania will receive nearly $5 billion under the federal CARES Act, but guidance from the Treasury Department says the money can only be used on spending that is needed to respond to the outbreak — not as “revenue replacement.”

The National Governors Association has said states need $500 billion in federal aid to replace revenues lost as a result of the outbreak, warning of “drastic cuts” otherwise. Democratic House Speaker Nancy Pelosi said Thursday local governments are seeking a similar amount, saying a total $1 trillion rescue package is needed.

As the prospects for further federal aid remain unclear, state lawmakers face a fast-approaching July 1 deadline to pass next year’s budget — or at least a stopgap measure.

Wolf has said he will stick to the ambitious spending plan he unveiled before the virus hit, although it assumes a 4.5% growth in revenue — a forecast that now seems virtually impossible.

“The governor’s budget represents our shared priorities, but any budget moving forward is going to have to reflect a very different reality,” said Rep. Matthew Bradford (D., Montgomery), minority chair of the House Appropriations Committee.

The state’s Independent Fiscal Office estimates that the coronavirus outbreak could cost Pennsylvania almost $4 billion in tax revenue, even under a “cautiously optimistic” scenario where businesses can reopen by May 25.

Wolf on Friday said his administration would ease restrictions in 24 northwestern and north-central counties on May 8, allowing retail stores and businesses to resume in-person operations if they follow certain safety guidelines. In March, he shuttered much of the state’s economy and ordered all residents to stay home to prevent hospitals from becoming overwhelmed with sick patients, which Pennsylvania has so far avoided.

A more complete economic recovery could be a long way off.

A report released this week by Moody’s Investors Service warned that the coronavirus will force states to make “dramatic budget adjustments” and cautioned that without tax increases, it could take years for state revenues to return to 2019 levels.

“Recovery to a level where no coronavirus crisis occurred is unlikely over a five-year horizon,” the report predicted.

Already in Philadelphia, Mayor Jim Kenney wants to hike taxes, lay off hundreds of city workers, and keep swimming pools closed this summer to fill an estimated $649 million budget hole caused by the coronavirus pandemic. Similar moves are likely in cities and towns across the state.

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