Falling Tax Revenues Affect Park and Recreation Budgets

October 29, 2020, Department, by Kevin Roth

2020 November Research Falling Tax Revenues Affect Park and Recreation Budgets 410

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Seventeen and one-tenth percent: that is how much state and local tax revenues plummeted this spring in the face of the coronavirus (COVID-19) pandemic and the resulting recession. In September, the U.S. Census Bureau released its Quarterly Summary of State and Local Tax Revenue data for the second quarter of 2020, and the picture it painted was not pretty.

State and local governments’ tax revenues totaled $335.1 billion between April and June of this year, down 17.1 percent from $404 billion collected during quarter one. These are “seasonally adjusted” estimates, in which the Census Bureau controls for the seasonal variations one sees typically with tax revenues during different times of the year (e.g., tax payment deadlines and differing consumer spending patterns).  

State and local tax revenues also were off 20.9 percent from the same quarter a year earlier, the largest year-to-year percentage decline in state and local government revenues going back to at least 1993. By comparison, tax revenues had been growing, on average, 4.5 percent year-to-year since 2012. Further, the largest year-to-year decline from the 2007 to 2009 Great Recession was a 16.7 percent drop in 2011, two years after the U.S. economy had resumed growing. The most significant tax drop resulting from the 2001 recession was a relatively modest 2.3 percent. 

In 2020, quarter two revenues fell across every significant tax category, albeit at vastly different rates. Consumer spending dropped sharply, the result of both rising unemployment and government-
mandated shutdowns. As a result, sales tax revenues slumped 16.2 percent during the quarter. Property tax collections held relatively stable this past spring, slipping 2.2 percent. In quarter two, individual and corporate income tax revenues were down 37.2 percent and 47.3 percent, respectively, from the same three months in 2019. 

Some of the state and local government tax revenue decline was due to the delay of this year’s income tax filing deadline from April 15 to July 15. Some of the “lost” income tax revenue will simply reappear in the quarter three tax data. But with millions of people who have lost their jobs, been furloughed and/or suffered a pay cut, income tax revenues will remain challenging for some time. Similarly, falling business income and companies going out of business will suppress corporate income tax revenues. 

Some of these tax revenues likely will recover relatively quickly (e.g., some sales tax categories). Others perhaps have not yet reached their lows for this recession (e.g., property tax revenues). Further, each location’s situation is unique, each experiencing varying impacts from the public health crisis and recession and having different tax structures.

Regardless of this variability, the COVID-19 pandemic and resulting recession had a sudden, sharp detrimental impact on state and local government tax revenues. There is little evidence that quarter two represents the “bottom” and that tax revenues will quickly rebound to pre-pandemic levels overnight. Short of assistance for state and local governments from Washington, D.C., state and local budgets will remain uncertain over the coming years.

Government leaders historically have cut park and recreation budgets to balance their budgets. This pattern repeated itself early in this crisis, with two-thirds of local park and recreation leaders reporting in late June (nrpa.org/ParksSnapshot
) that they had slashed their current year operating budgets, with the typical cut between 10 percent and 19 percent. With state and local tax revenues unlikely to recover quickly, park and recreation agencies likely will be on the defensive as they work to protect their budgets.

The public health emergency demonstrated once again how parks and recreation are an essential government service. The 2020 NRPA Engagement with Parks Report finds that 82 percent of U.S. adults agree with this sentiment. With so much uncertainty, it has never been more critical for our professionals to make the case for the essential nature of parks and recreation. 

Kevin Roth is Vice President of Research, Evaluation and Technology at NRPA (kroth@nrpa.org)