COVID-19 Briefing: Getting the Region to Fiscal, Economic, and Public Health
For state and local jurisdictions, the COVID-19 pandemic is a double threat: it endangers public health, and the loss of tax revenue from closed businesses slashes state and municipal budgets at a time when public services are sorely needed. This briefing features Virginia Secretary of Finance, Aubrey Layne; Chief Financial Officer of the District of Columbia, Jeff DeWitt; and Maryland Comptroller, Peter Franchot. These three leaders will share how they are approaching this crisis and what the path to fiscal, economic, and public health looks like in their jurisdictions.
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The financial hit to state/District budgets
DC, Maryland, and Virginia are all collecting significantly less tax revenue than they normally would since revenues are way down, especially in the hospitality sector. DC’s CFO, Jeff Dewitt, said that overall, the restaurant industry is only doing about 12% of its normal revenues. This is usually peak season for hotels, but half are closed, and the other half are only running 5-10% occupancy.
DC is projecting its tax revenue to be reduced by 722 million dollars for the current fiscal year. Virginia and Maryland are both preparing for losses in the billions through the rest of 2020.
All three financial leaders described working with multiple projections based on different scenarios, but they seemed to expect that we will continue to see widespread business closures through September or October.
Though all three governments have ample liquidity, they will be challenged. Maryland Comptroller Peter Franchot said that he is advising Governor Hogan to spend the states entire rainy-day fund, but he still said with certainty that the Maryland government is facing furloughs and layoffs. District CFO Jeff Dewitt stressed the need for DC to receive adequate funding from the federal government after being shortchanged by the CARES Act because what they are due to receive will not cover the low end of their cost estimate for COVID-19 response. Virginia’s Secretary of Finance, Aubrey Layne, said that states would be in a better place if they could use the CARES Act funds could be used with more flexibility; they are unable to use those funds to make up for revenue losses.
Deep budget cuts are inevitable. When asked how they are going to approach setting priorities for allocating funds, the finance leaders agreed that it is important to be realistic. Addressing the public health crisis and maintaining continuity of critical government functions is top priority. Governments will need to face the disappointment of not being able to do much of what they had planned at the beginning of the year. Maryland Comptroller Peter Franchot also said that Maryland will likely refocus on the needs of small business and family budgets.
The path to reopening
All three financial leaders confirmed that getting the pandemic under control is the first step to reopening the economy. They agreed that a scenario in which we reopen too soon, see a second spike in transmissions, and need to close businesses and other facilities a second time is the most costly and disruptive scenario, according to their models.
Ample testing and contact tracing are key to reopening. All three jurisdictions are working hard to procure the testing supplies and personnel they need, but the financial leaders share concerns that more should be done on the federal level. The current approach places a great deal of responsibility on the states and puts them in competition with each other.
The District, Maryland, and Virginia will each follow recommendations from the White House and CDC to reopen the economy in phases. However, Virginia Secretary of Finance Aubrey Layne expressed frustration with mixed messages coming from the White House, citing the President’s tweets to “Liberate Virginia.” Maryland Comptroller Peter Franchot also expressed concern over recent demonstrations calling for Governors to lift restrictions and said that he has advised Governor Hogan to stay the course and put public safety first.
All three leaders agreed that restoring consumer confidence will be a challenge—another reason why decisions to relax restrictions on business and public gatherings must be made thoughtfully and with the support of public health experts.
It was also agreed that the approach must be regional. It would make little sense to reopen restaurants in one jurisdiction while they are closed in another, for example. The three governments must work together to ensure that policies are coherent across the whole region, given the frequency with which workers, residents, and visitors cross our borders.