Pennsylvania facing up to $4 billion budget shortfall as coronavirus shutdown upends state budget

Approximately one-fifth of all workers in the state have been laid off, according to a new report by the state's Independent Fiscal Office.

• Charlotte Keith/Spotlight PA
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  Charlotte Keith joins Spotlight PA from The Investigative Post, a nonprofit news outlet in Buffalo, N.Y., where she has reported extensively on the corrupt and wasteful spending in Gov. Andrew Cuomo’s ‘Buffalo Billion’ economic development program. In 2016, her reporting on problems in Erie County’s child protective services unit was a finalist for the national Livingston Awards for Young Journalists in the local reporting category. She has experience translating her stories for both radio and television, and her work has also appeared in the Albany Times-Union, ProPublica, and the Texas Observer. Originally from London, she earned her undergraduate degree from the University of Cambridge, where she edited Varsity, the independent student newspaper. She graduated with honors from Columbia University’s Graduate School of Journalism, where she was a fellow at the Toni Stabile Center for Investigative Journalism.

 Matt Rourke / AP Photo

Shown is the Pennsylvania Capitol building in Pa., Harrisburg, Tuesday, Jan. 15, 2019.

Spotlight PA is an independent, nonpartisan newsroom powered by The Philadelphia Inquirer in partnership with the Pittsburgh Post-Gazette and PennLive/Patriot-News.

HARRISBURG — The coronavirus outbreak could cost Pennsylvania $2.7 billion in lost tax revenue over the next 15 months, blowing a serious hole in the state budget, according to a report released Wednesday by the state’s Independent Fiscal Office.

And that’s the best case scenario, assuming that businesses can reopen by April 27. If the statewide shutdown has to remain in place for another six weeks, the office estimates, the state would be facing a financial hit of $3.7 billion in lost revenues.

Even that grim number is “cautiously optimistic,” said Matthew Knittel, the director of the fiscal office.

“Taxpayers should be prepared for a significant reduction in state resources,” Knittel said. “What we’re seeing, there’s just no precedent for it.”

Those numbers don’t take into account the effects of the recent $2.2 trillion federal stimulus package, which will bring roughly $50 billion to Pennsylvania through a variety of programs. The federal funding will help soften the blow, but won’t be enough to offset the revenue losses altogether, Knittel said.

Roughly 20 percent of all of the state’s workers have been temporarily laid off, he said. The resulting deluge of unemployment claims could cost the state between $4.5 billion and $6 billion by the end of the next fiscal year, the report found.

As long as Gov. Tom Wolf’s statewide shutdown order remains in place in an effort to combat the coronavirus pandemic, the tax revenues Pennsylvania counts on to balance the budget and pay for essential services will fall far short of estimates.

The fiscal office’s report represents the first attempt to put a number to the financial toll the outbreak will take on the state’s finances. But, with so much uncertainty, the fiscal office acknowledges that its forecasts come with caveats and will likely need to be revised later in the year.

“It’s hard, when you look back, to model that appropriately,” Knittel said. “There’s no other examples of this.”

Adding to the uncertainty, he said, is that it’s not clear how quickly businesses could return to normal even once the shutdown order is lifted. People may hesitate to congregate in shops and restaurants again, and they might cut back on spending amid a national economic downturn.

The delay of the state deadline for filing personal income taxes, which was moved from April 15 to July 15, further complicates the picture, pushing billions of dollars in revenue into the next fiscal year and prolonging the uncertainty around how steep the shortfall will be.

Business closures and layoffs, which have led Pennyslvanians to file for unemployment in record numbers, mean less money coming in from sales and personal income tax, the state’s two largest sources of tax revenue.

The state Department of Revenue, which produces the official revenue estimates on which the budget is based, has not yet released any numbers on the fiscal impact of the coronavirus outbreak. A spokesperson said the department is “closely monitoring the impact of the pandemic.”

State tax revenues for March, which don’t fully reflect the economic impact of the virus, came in six percent short of official estimates, with Revenue Secretary C. Daniel Hassell predicting the April numbers would be even worse.

Gov. Tom Wolf has already started cutting costs, implementing a hiring freeze, laying off around 2,500 seasonal and temporary workers and last week stopping paychecks to more than 9,000 state employees who cannot telework.

Pennsylvania is heading into the economic downturn with scant reserves, even after large deposits into the rainy day fund last year. The state has enough saved to cover just three and a half days of operating expenses, the treasurer’s office estimated at the time.

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