Ball State Study Says COVID-19 ‘Deeply Damaged’ Ind. Economy
June 17, 2020 at 10:35 p.m.
Ball State Study Says COVID-19 ‘Deeply Damaged’ Ind. Economy
By David [email protected]
An analysis by the Ball State University Center for Business and Economic Research (CBER), titled “COVID-19 Effects on Indiana’s State and Local Taxes,” found that the economic shutdown caused by COVID-19 has “deeply damaged the state’s economy,” according to a news release issued Wednesday.
The study estimates state and local governments are now facing tax revenue losses for all local governments that range from $240 million to $700 million in 2020. CBER anticipates tax revenues will rebound by the end of 2021 but remain beneath the 2019 levels by as little as $39 million and as much as $559 million, the release states.
Michael Hicks, CBER director who conducted the study with Dagney Faulk, CBER research director, and Srikant Devaraj, a CBER research professor, said, “Our scenarios reflect a state that will not fully recover from this pandemic before 2022, if not much longer. These estimates are for a deep and lengthy downturn, and each of our scenarios are among the seven worst since the start of the Great Depression.”
CBER estimates decreases in tax revenues to state and local government for five economic scenarios resulting from the pandemic in 2020 and 2021. For each scenario, CBER estimated the impact on Indiana state sales tax, personal and corporate income tax and other tax revenue with “reasonable assumptions,” the release states.
For calendar year 2020, researchers expect tax losses to range from 3.8% to 10.9% of 2019 total revenues for the state. In 2021, the study anticipates tax revenues will still range from 0.7% to 9.4% beneath those of 2019.
“While we generally anticipate improved economic conditions in 2021, our most optimistic scenario places GDP at only 2% above that of 2019. Our most pessimistic scenario considers GDP in 2021 at 2% beneath the 2019 level,” Hicks said.
Compared to the state, county-level tax losses comprise a smaller share of total revenues, ranging from losses of 2.4% to 6.8% across the five scenarios in 2020 and between 0.4% to 5.8% losses in 2021. In 2020, the report anticipates county-level revenue losses to range from less than 1% of total tax revenue to more than 48%.
Asked about the CBER analysis at Wednesday’s weekly press conference on the COVID-19 pandemic at Warsaw City Hall, Kosciusko County Commissioner Cary Groninger said on Tuesday the commissioners and county council had a half-hour executive session with Baker Tilly Virchow Krause, LLP, an accounting firm out of Indianapolis that specializes in financial forecasts for municipalities.
“They (Baker Tilly) directly looked at some of our revenue streams and how those might be impacted. Each revenue stream has a different point which it may be impacted. Some of them are going to be relatively quickly, some of them may be a year or even a year and a half from now. And there’s still a lot of guess work,” Groninger said.
He said Baker Tilly used some figures from the recession in 2008-09 to try and get some similarities of how things were affected from an economic perspective when people aren’t working.
“They were able to give us a pretty comprehensive report that I know that both the council and the commissioners – more council probably because they’re the finance people of the county – I know they’re going to be looking at that and looking really hard at what kind of tough choices might need to be made for the finances of our county,” Groninger said.
He said fortunately the county has had a lot of conservative leadership for decades and that leadership has done well of putting the county in a position with very low debt, “and some cash reserves can help us weather a storm like this. Not that we’re not going to be affected by any stretch of the imagination. There’s going to have to be some tough decisions that are made, but we’re not in a position that we’re in mission critical by any stretch. We’ve got several options – that was the nice thing about the (Baker Tilly) report. Not only did they point out a few of the areas that could be some concerns, but it also gave some options on what we might be able to do to overcome those obstacles in the coming years.”
It’s still a little bit early to tell what’s going to happen, Groninger said.
“Property taxes did get pushed back a bit, but I think on a whole most people did pay them on time, even though they didn’t have to,” he said. “So, I think that some of those fears that we thought everybody might wait until July because there wasn’t going to be a fine – they were still due in May but they wouldn’t be fined until after” a date in July.
Groninger said some good signs are starting to show.
The county’s Motor Vehicle Highway funding – which comes from the tax on gasoline – for roads was down significantly in April and May, he said.
“We’re already seeing, as far as from (Indiana Department of Transportation), those traffic counts we’re already start seeing those rebound quite nicely,” Groninger said. “Some of these things are going to be relatively short term, but there are going to be some things that are going to be long term – I say long term, a couple years – that we’re going to have to look at.”
He said most everything that Baker Tilly showed the county on Tuesday, “By 2023, we were pretty much back to or even above where we were at the current revenue streams, at least at this point. It’s still a very fluid situation that, depending on how things progress as we move forward, how quickly the economy truly recovers, how soon the people get back to work. I think as we can see those unemployment numbers continue to go down, that gives everybody a little more peace that we’re going to get back to a little more normal pace of employment in the area.”
A lot of good information will help the commissioners and council make some wise choices moving forward, Groninger concluded.
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An analysis by the Ball State University Center for Business and Economic Research (CBER), titled “COVID-19 Effects on Indiana’s State and Local Taxes,” found that the economic shutdown caused by COVID-19 has “deeply damaged the state’s economy,” according to a news release issued Wednesday.
The study estimates state and local governments are now facing tax revenue losses for all local governments that range from $240 million to $700 million in 2020. CBER anticipates tax revenues will rebound by the end of 2021 but remain beneath the 2019 levels by as little as $39 million and as much as $559 million, the release states.
Michael Hicks, CBER director who conducted the study with Dagney Faulk, CBER research director, and Srikant Devaraj, a CBER research professor, said, “Our scenarios reflect a state that will not fully recover from this pandemic before 2022, if not much longer. These estimates are for a deep and lengthy downturn, and each of our scenarios are among the seven worst since the start of the Great Depression.”
CBER estimates decreases in tax revenues to state and local government for five economic scenarios resulting from the pandemic in 2020 and 2021. For each scenario, CBER estimated the impact on Indiana state sales tax, personal and corporate income tax and other tax revenue with “reasonable assumptions,” the release states.
For calendar year 2020, researchers expect tax losses to range from 3.8% to 10.9% of 2019 total revenues for the state. In 2021, the study anticipates tax revenues will still range from 0.7% to 9.4% beneath those of 2019.
“While we generally anticipate improved economic conditions in 2021, our most optimistic scenario places GDP at only 2% above that of 2019. Our most pessimistic scenario considers GDP in 2021 at 2% beneath the 2019 level,” Hicks said.
Compared to the state, county-level tax losses comprise a smaller share of total revenues, ranging from losses of 2.4% to 6.8% across the five scenarios in 2020 and between 0.4% to 5.8% losses in 2021. In 2020, the report anticipates county-level revenue losses to range from less than 1% of total tax revenue to more than 48%.
Asked about the CBER analysis at Wednesday’s weekly press conference on the COVID-19 pandemic at Warsaw City Hall, Kosciusko County Commissioner Cary Groninger said on Tuesday the commissioners and county council had a half-hour executive session with Baker Tilly Virchow Krause, LLP, an accounting firm out of Indianapolis that specializes in financial forecasts for municipalities.
“They (Baker Tilly) directly looked at some of our revenue streams and how those might be impacted. Each revenue stream has a different point which it may be impacted. Some of them are going to be relatively quickly, some of them may be a year or even a year and a half from now. And there’s still a lot of guess work,” Groninger said.
He said Baker Tilly used some figures from the recession in 2008-09 to try and get some similarities of how things were affected from an economic perspective when people aren’t working.
“They were able to give us a pretty comprehensive report that I know that both the council and the commissioners – more council probably because they’re the finance people of the county – I know they’re going to be looking at that and looking really hard at what kind of tough choices might need to be made for the finances of our county,” Groninger said.
He said fortunately the county has had a lot of conservative leadership for decades and that leadership has done well of putting the county in a position with very low debt, “and some cash reserves can help us weather a storm like this. Not that we’re not going to be affected by any stretch of the imagination. There’s going to have to be some tough decisions that are made, but we’re not in a position that we’re in mission critical by any stretch. We’ve got several options – that was the nice thing about the (Baker Tilly) report. Not only did they point out a few of the areas that could be some concerns, but it also gave some options on what we might be able to do to overcome those obstacles in the coming years.”
It’s still a little bit early to tell what’s going to happen, Groninger said.
“Property taxes did get pushed back a bit, but I think on a whole most people did pay them on time, even though they didn’t have to,” he said. “So, I think that some of those fears that we thought everybody might wait until July because there wasn’t going to be a fine – they were still due in May but they wouldn’t be fined until after” a date in July.
Groninger said some good signs are starting to show.
The county’s Motor Vehicle Highway funding – which comes from the tax on gasoline – for roads was down significantly in April and May, he said.
“We’re already seeing, as far as from (Indiana Department of Transportation), those traffic counts we’re already start seeing those rebound quite nicely,” Groninger said. “Some of these things are going to be relatively short term, but there are going to be some things that are going to be long term – I say long term, a couple years – that we’re going to have to look at.”
He said most everything that Baker Tilly showed the county on Tuesday, “By 2023, we were pretty much back to or even above where we were at the current revenue streams, at least at this point. It’s still a very fluid situation that, depending on how things progress as we move forward, how quickly the economy truly recovers, how soon the people get back to work. I think as we can see those unemployment numbers continue to go down, that gives everybody a little more peace that we’re going to get back to a little more normal pace of employment in the area.”
A lot of good information will help the commissioners and council make some wise choices moving forward, Groninger concluded.
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