(Bloomberg) -- U.S. states may face budget deficits of $500 billion combined over the next two years as the deep economic slowdown causes revenue to plunge, paving the way for deep spending cuts or tax increases that could exert a drag on the recovery.
The estimate from the Center on Budget and Policy Priorities, a left-leaning think tank based in Washington, D.C., shows how long the consequences of the virtual economic shutdown will continue to ripple through state governments.
The response to the coronavirus is threatening every major source of states’ revenue as businesses are shutdown, millions are thrown out of work and the sell-off in the stock market this year diminishes capital gains taxes.
The scale of the deficits has led governors to push for more help from Washington as Congress weighs another stimulus measure to help revive the economy. Maryland’s Larry Hogan and New York’s Andrew Cuomo, the chair and vice chair of the National Governors Association, asked Congress to give states $500 billion in “stabilization funding.”
“The year ahead will be extremely damaging to state budgets, resulting in budget shortfalls much worse than even the worst year of the Great Recession and dwarfing the fiscal harm caused by the 2001 recession, unless Congress and the President provide significantly more aid,” the Center on Budget and Policy Priorities said a report released Tuesday.
Related: Billion-Dollar Blows to U.S. States Crater Spending Plans
The group said the size of the shortfalls forecast through June 2022 may fluctuate based on whether states can close revenue shortfalls with the Treasury Department’s relief fund, which covers public health expenditures incurred by the coronavirus. If they can’t do so, states may face shortfalls of $360 billion even if they withdraw $75 billion in rainy day fund balances.
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