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Impacts on Budget, Lives Could be Dire

Credit: Howard Fischer/Capitol Media Services

By Howard Fischer for Capitol Media Services via Arizona Daily Star 

The COVID-19 outbreak is going to blow a billion-dollar hole in state finances. 

And about 775 Arizonans will die by the end of May from the virus. 

Those predictions from the Joint Legislative Budget Committee as staffers said the decline in state revenues plus additional costs to the state from the effects of the virus should leave Arizona with a $1.1B budget deficit by the end of the next fiscal year. That’s out of what is basically an $11.8B spending plan. 

The potential fiscal effects of the pandemic are even more dire. 

The report says that $1.1B deficit comes even after the state uses close to $1B it was expected to have left over by the end of this budget year, which is June 30. 

There is one bright spot of sorts. The state does have about $973M in its “rainy day” fund, a special account set aside for emergencies. 

And legislative budget staffers said there will be some relief funds coming from the federal government. 

But it also could mean that lawmakers, who until a month ago were planning ways to spend what was expected to be a cash surplus, will now have to find places to cut. 

Even if the more immediate revenue shortfall gets addressed, analysts are predicting another $1B shortfall in the 2021-2022 fiscal year. That’s because the number of people in the state’s Medicaid program is still expected to be high. But by that point, the extra dollars the federal government is providing to help will have disappeared. 

Richard Stavneak, staff director of the JLBC, told members of the state’s Finance Advisory Committee who were reviewing the report that making projections at this point is risky. 

Stavneak said the Institute for Health Metrics and Evaluation is predicting that Arizona will end up with 775 virus-related deaths by the end of May. 

There is some wiggle room in those numbers, with the institute reporting the total could be as low as 230 or as high as 2,361. 

What that means, Stavneak continued, is that the Arizona economy, driven by income and sales taxes, could take much longer to recover. 

Gov. Doug Ducey brushed aside the projections. 

“Some of the announcements today are basically guesses,” he said. “No one really knows because the economy is not operating. And without economic activity it’s very hard to make forecasts.” 

Economists are looking at the indicators they have to make some forecasts. 

Among those is that the Phoenix hotel occupancy rate fell by 71 percent in the last week of March. That affects not just the tax revenues from the rooms but the fact that people are not coming to Arizona and spending money here. 

At the same time, the report says, several restaurant chains have reported a 70 percent decrease in sales, even with an increase in takeout orders.  

And then there’s the fact that nearly a quarter-million Arizonans have applied for unemployment benefits in the past three weeks alone. By comparison, total private sector employment in Arizona before the pandemic was about 2.5 million. 

That $1.1B shortfall could be as little as $600M or as much as $1.6B. 

Stavneak said his staff should have better numbers in June. 

Read more at Arizona Daily Star. 

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