Aside from the other effects of the crash now underway, especially the more important human aspect, the near term hit to state and local revenues will be challenging for Illinois and other troubled states, and perhaps a game changer.
We probably won’t see hard numbers start to come out for Illinois until the first week in April when COGFA delivers its monthly state revenue report for March. The “big three” revenue sources for the state are sales, corporate and personal income taxes. Sales tax revenue no doubt will decline, although initially it may be offset by the burst of sales to people storing up food and other essentials. Corporate and personal income tax revenue shrinkage probably won’t show up until later, but it will come and will be large.
Nobody knows how long the current crisis will last. However, even if things return to normal well before the end of the year as I for one am hoping, a big hole probably will be blown in Illinois’ pending budget for 2021, which starts July 1. And the deficit left for 2020 surely will be bigger than expected.
The sharpest percentage drop may come in gaming revenue, on which the budget increasingly relies. The pending $42 billion Illinois budget proposal assumes about $1 billion from lottery and casino revenue alone. Gaming revenue drops hard during economic slowdowns. According to COGFA, regarding the last recession,
Illinois’ statewide adjusted gross revenue figures followed an -18.3% decline in FY 2009 with subsequent declines of -5.0% in FY 2010 and -3.8% in FY 2011. Casino admissions also faltered with a decline of -7.1% in FY 2011. In FY 2012, casino figures finally improved as adjusted gross receipts and admissions increased 21.5% and 22.7%, respectively.
It appears we are about to find out. We will also find out what the credit rating agencies say.
UPDATE: A municipal bond banker also reminded me that existing bond issuers are required to provide additional disclosure of material events, and the impact of this crisis is clearly that. The required timing for that is unclear to me.