Study: State, Local Governments Face Challenges, Tax Losses From COVID-19

Jun 19, 2020

A business in South Bend temporarily closed due to COVID-19.
Credit (Justin Hicks/IPB News)

As state officials work to figure out how to address tax revenue losses due to COVID-19, local governments are facing shortfalls of their own.

A recent study by Ball State University economists shows local county-level revenues may be down an average of between 2.4 and 6.8 percent this year from 2019. Some areas of the state could have losses of up to 48 percent, hitting harder in counties that rely on businesses considered more “at-risk” like casino revenue, or innkeepers’ tax.

The study looks at several possible scenarios for the current recession caused by the coronavirus pandemic. Ball State economist Michael Hicks says the original recession expectation was more V-shaped, but recent more permanent job losses have changed that forecast.

“So the Nike swoosh looks more like a more normal deep down turn, or I should a say an extreme deep down turn, followed by a more normal recovery where it takes several months for each million permanent job losses to be absorbed back into the economy,” says Hicks.

He says local governments without a few years of money in reserves are going to face challenges.

“For most local governments, the options available to increase revenues are just very minimal,” says Hicks. “There have been long standing growth caps on property taxes and the property tax caps in many counties are at full capacity, so there’s not going to be a lot of slack.”

He says local governments that rely on casino revenue such as Orange and Shelby counties as well as those already fiscally strained like Delaware and Lake counties will be hit especially hard from the recession.

Hicks says the scenarios published right now may be overly optimistic if the virus spreads rapidly again and causes a significant loss of life.

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