The $3.4 billion rainy day fund won’t last the summer*.
How badly and quickly has Covid-19 crippled Massachusetts’s economy? As of mid-June, 2020, the State has collected $2.3 billion less in tax revenues than the same time last year, a -8.2% drop. Why haven’t you read about it? Because everyone is allowed to defer paying their taxes until mid-July. Theoretically, Mass may collect as much money as 2019. Therefore, the State Government feels it imprudent to speculate on the effects of the pandemic on future tax collection.
The most they will say is
…the Secretary and Committee chairs agreed that $25.621 billion would be the maximum amount of tax revenue available for the fiscal 2021 budget
The fiscal 2021 consensus tax revenue estimate of $31.151 billion has not yet been formally revised or adjusted in light of the outbreak of the COVID-19 pandemic and the anticipated negative fiscal impact the pandemic is expected to have on tax revenues.
MA has enough data to make a conservative adjustment to its projected budget, but has yet to do so.
Compounding MA’s financial stress are the near $1 billion in unemployment insurance payments racked up each month. Each claimant is entitled to 6 months of benefits. We’ve blown through that $1.7 billion in savings too.
Once 2nd quarter earnings are announced in July, expect a second wave of white-collar layoffs.
If deaths in MA are 0.39% of the population under 60, and we can keep deaths of older people to a minimum, what might a plan look like that keeps the economy open for the young generations? If only 1 out of every 1,000 people under the age of 50 die, can we expect them to keep following a one-size fits all approach to Covid-19?
Let’s put these big numbers in context. Beginning in April, I estimate (back of envelope) that every citizen of the Commonwealth, 6.9 million strong, is bearing $185 every month in lost tax revenue. In a matter of weeks, after the $3.4 billion in the rainy day fund is exhausted, each taxpayer will need to make up that difference by raising taxes, cutting services or borrowing money.
If we calculate these liabilities against those employed in MA, which has fallen to 30–40%, we’re looking at $371 a month. That’s $4,452 anualized. As mentioned, the Mass Unemployment Fund is exhausted and I estimate $500 million in the red and growing. The remaining workers will need to pay $1,500 worth of that debt plus contribute more to rebuild Massachusetts’s UI savings.
My read of the numbers is that come January, 2021, each Massachusetts worker is looking at a share of a forward 12-month State deficit of $3,000, for a total of $7.5 billion by December 2020.
At $100K a worker, a $7.5 billion shortfall puts 75,000 jobs at risk. That’s the whole State government! One study estimated that for every 40-year-old who was fired they lost a year from their life. What about the person who crashes their bike from a pothole that wasn’t fixed? The truth is, taxes keep us healthy in many unseen ways.
More details at my blog about MA UI financials
Switching back to the virus. I want to point out that there’s a difference between beating the virus back through brute-force isolation and managing its spread through numbers-based public policy.
Before I go on, we should have tried to eradicate the virus completely. That’s what I want.I see no sign, sadly, that the world can cooperate and get it done. The following is a Plan B.
Does Massachusetts have a number-based policy? Why aren’t they sharing it with us? Why can’t see see the targets or economic kill-switches? Isn’t it time the government moves away from potentially capricious decision-making?
*Massachusetts will tap a $1.75 billion line of credit with banks, and billions from the U.S. Treasury, to hide the fact that they’ve gone through their savings.
Please feel free to contact me at max at maxdatabook.com.