Texas sees sharp decline in tax revenue as coronavirus surge unleashes uncertainty

The stakes have been on display in Texas, which witnessed a $650 million drop in tax revenue collected in June, according to data released Wednesday by state budget officials, which includes sales mostly made in May. Texas leaders attributed the decline to consumers shelling out less for cars, gasoline, alcohol and other goods, as well as precipitous drops in travel and tourism, compared with the same period a year earlier.

No state has been untouched by the coronavirus pandemic, which this spring brought commerce to a halt and cleaved massive holes in local governments’ budgets. But Texas had been considered one of the healthier states entering 2020, flush with a robust reserve of cash to help it weather an economic downturn.

With its outbreak only worsening, the Lone Star State’s struggles may offer a fresh warning sign that even the strongest economies are vulnerable when an uncontrolled pandemic results in prolonged disruption.

“Even the states that are really well run are being really overwhelmed by the level of downturns they are going to see in terms of revenues,” said Dan White, the director of government consulting and fiscal policy research at Moody’s Analytics. “Even states like Texas that are well prepared need more help from the federal government, and need more help quickly.”

Nationwide, city and state leaders say their financial situation is dire. The public sector has shed more than 1 million jobs since the crisis began, as these governments slash their staffs to balance their unsettled budgets, according to Labor Department data released Thursday. Federal indicators show that states in particular shed roughly 25,000 jobs just last month, even as other hard-hit sectors began the slow path to recovery.

The layoffs and furloughs — along with massive reductions in citizen-facing government services — have prompted renewed calls in recent days from the nation’s mayors, county administrators and governors for more federal aid that might help them stave off the most debilitating cuts.

“Unlike the federal government, these state and local governments must begin their fiscal years on time and with a balanced budget,” a collection of groups that represent local government leaders and employees wrote in a letter to Congress. Without more money, they added, “our nation’s recovery from the pandemic-induced recession will suffer and millions of Americans will needlessly be harmed.”

But a congressional effort to authorize an additional $1 trillion in state and local support, which House Democrats have already adopted, has received little traction among Republican leaders in the Senate even as negotiations continue on a new emergency coronavirus relief package. GOP lawmakers are skeptical about additional spending, with some suggesting along with President Trump that only states led by Democrats are in need of direct federal help. Others contend the best solution is to repurpose existing dollars so cities and states can spend them more easily.

“What I hear back home is that our states and cities don’t need more money, they need the flexibility to be able to spend it where they need it,” Rep. Kevin Brady (Tex.), the top Republican on the House Ways and Means Committee, said at a news conference last week.

Lauren Aronson, a spokeswoman for Sen. Ted Cruz, signaled the Texas Republican is also skeptical of additional local aid. “Sen. Cruz believes the focus now should be on long-term recovery, not short term relief, and that after sending nearly $3 trillion to our cities, states, job creators, and hardworking families, Congress should stop spending money it doesn’t have,” she said in a statement.

Lawmakers for now have adjourned for their two-week July recess, leaving the prospect of any new coronavirus aid package in great doubt. Last week, Treasury Secretary Steven Mnuchin said the Trump administration would “consider” a new round of state and local aid, a comment that came as he exited a White House briefing meant to tout recent U.S. job gains.

But some states’ financial situations have grown only more precarious as their infection counts have increased. The contagion has proved especially pernicious in Southwestern states including Arizona and Texas, leading them to reintroduce limitations designed to keep people from crowding confined spaces.

Texas Gov. Greg Abbott (R), for example, has once again ordered bars closed, reduced restaurant occupancy limits and taken additional steps in an attempt to slow a coronavirus outbreak that has started to strain local hospitals. His office did not respond to a request for comment. Mayors of major cities, including Houston, also have deployed measures to reduce congestion and promote social distancing at an array of businesses.

Even before implementing those measures, Texas felt the some of the financial sting of the pandemic. High unemployment in the Lone Star State triggered a local law last week that provides additional weeks of jobless benefits to out-of-work residents. Among the newly laid off are roughly 50,000 city and state government workers, according to federal indicators from May.

Tax collections in Texas in the meantime are down by roughly $5.7 billion over the past four months of the pandemic, according to a Washington Post analysis of state budget records, compared with the same March-to-June period in 2019. A significant portion of the gap is attributed to the fact that Texas delayed the filing date for some business franchising taxes until July.

Unlike many states, Texas entered the economic crisis with healthy cash reserves of roughly $11 billion, allowing state officials perhaps to avoid some of the more painful cuts and tax increases pursued by other locales. But Abbott in May still asked most state agencies to calculate 5 percent reductions in their budgets, a sign that even localities in a strong fiscal position may suffer if the downturn proves protracted.

“There really is no state immune to the economic consequences of covid,” said Lucy Dadayan, who leads the State Tax and Economic Review project with the Urban-Brookings Tax Policy Center. “Even if you have large rainy-day funds, which I acknowledge Texas does, it still is not sufficient if your economy is going to be shut down if not formally, then informally, for months.”

The state’s most lucrative revenue stream, sales taxes, plummeted more than $200 million between mid-May and mid-June, falling roughly 6.5 percent compared with collections in June 2019, state budget officials said in figures reported Wednesday. The decline came partly in response to “steep drops in remittances from oil- and gas-related sectors,” Glenn Hegar, the comptroller, said in a statement.

“It’s dealt with the dual shock: the covid shock and the oil and gas industry shock,” said Tim Fitzgerald, an economics professor at Texas Tech University. “Oil prices have rallied substantially … but the activity in terms of new investment and drilling has not yet returned.”

Sales tax receipts had fallen by more than 13 percent earlier in the pandemic, so the economy “actually improved from April to May,” said Anil Kumar, a senior economist in the research department at the Federal Reserve Bank of Dallas, who pointed to the $2 trillion coronavirus aid package as one reason for the improvement.

“The pace of the recovery will depend on both of these things, the virus spread and the future path of the fiscal stimulus,” he added, noting that a surge in cases still “could slow the recovery down. But the recovery is happening.”

Andrew Van Dam and Erica Werner contributed to this story.