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COVID-19 whacks Pennsylvania’s economy

The COVID-19 pandemic has laid economic waste to everything in its path. Not only have the brakes been put on employees, businesses and industries, but school, municipal, county and state finances have been hacked to pieces by this invisible invader.

Some relief will come from the $2 trillion rescue package that Congress just passed, but this will be a temporary Band-Aid on a massive wound.

It was just a month ago that Pennsylvania’s finances were looking promising - so promising in fact that Gov. Tom Wolf introduced a 2020-21 budget with a 4.5% spending increase. Scrap that idea now.

With the booming economy, the state was able to infuse a generous payment last year to its anemic rainy-day fund, which had been nearly drained after the 2008-09 recession. This gives the state about $340 million in reserves, which is a drop in the bucket when compared to the financial hit the state will be taking with the closing down of many nonessential businesses, including the granddaddy of them all - the casinos.

In February, with the economy humming along at nearly unprecedented levels, the chances of a recession were placed at about 20%. Unemployment was at a historic low. Now, many believe we are in a recession, although this is unlike any recession we have ever seen. Most economists believe, however, that the economy will bounce back once a semblance of normalcy returns. The problem is that no one knows when.

Nor does anyone know what the path forward will be like. In prior pandemics, most businesses and industries were not shut down, services were not drastically disrupted, and the uncertainly didn’t last too long.

The state’s lifeblood is taxes. The 3.07% income tax, whose revenues will be traumatized by the massive unemployment, will bring in far less than projected. The 6% sales tax is taking a hit because many of the stores that sell taxable products are closed. Sure, there is a surge in grocery store sales, but food is not taxable, so any gains realized from the panic buying at grocery stores will be minimal.

And then there is the hefty taxes on casinos which evaporated overnight. That one line item alone last year resulted in $1.4 billion of revenue. The state lottery is taking a hit, too, as people watch their pennies in these fragile times.

Another big tax source is booze. With liquor stores shuttered, revenue this year will fall far short of the $700 million in 2019.

On the local level, most municipalities and school districts share the 1% earned income tax which will be far less this year as unemployment soars. As for property taxes, will municipalities, counties and schools be forced to raise them even higher than they had planned to make up for lost revenue elsewhere?

Then there is the revenue generated by the amusement tax, which is sure to be battered since concert venues, theaters and sports arenas are shuttered.

There are fees, such as for fishing and hunting licenses, state parks admission, along with other leisure time activities which will surely feel the pinch, too.

In tandem with this mountain of lost revenue, demand for unemployment compensation, public assistance and other state-sponsored services is soaring. We already saw the first week of unemployment claims nationally go up by 3.3 million last Thursday. Look for similar, maybe even higher eye-popping numbers this week.

State Sen. Pat Browne, R-Lehigh, chair of the Appropriations Committee, said it is too early to know what kind of decisions will have to be made to shore up state finances. “They are surely going to be challenging,” he said.

If there is any encouraging news, Browne said that it took the state nearly 10 years to recover from the Great Recession. “This one should not have extended consequences,” he said.

By Bruce Frassinelli | tneditor@tnonline.com