Emergency Brake Pulled for Business Re-openings and Also for Government Revenue

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Governor Gavin Newsom announced that he is pulling the “emergency brake” in his plan to confront the coronavirus sending many California counties to the lowest tier for reopening the economy. This effort to stall the spread of the Covid-19 virus will also serve as an anchor on job and economic growth as well as revenue collection by state and local governments.

Newsom made the call after data across the state showed a surge in virus victims, which will once again pressure the health providers efforts to deal with patients and threaten hospital capacity. Over a seven-day period beginning Nov. 1, the state saw a 51.3% increase in cases.

Twenty-eight counties will have to flop back to the lowest tier of the most restrictive rules on business openings including some of the large population centers of the state.

The restrictive rules in the lower tier include closing indoor restaurant spaces; indoor worship services; indoor gyms and fitness centers; and indoor museums, and family entertainment centers, among other restrictions.

But the cutback on business will also reduce revenue to the state and local governments, already hit hard by the pandemic. Surprisingly, government revenue collection was doing better than expected when the state budget was approved.

According to the October Finance Bulletin issued by the Department of Finance, California’s tax revenues in September were 43 percent greater than forecast by the 2020-2021 Budget Act enacted in June. Revenues for the first three months of the current fiscal year were $8.7 billion greater than forecast. 

(UPDATE: The October financial bulletin is now out showing the tax revenue collection 37 percent above  the budget forecast and $11 billion more than expected.)

But with the brake pulled, it is hard to imagine those positive revenue numbers will continue. Local governments also saw some promising growth that will now hit a wall.

The governor weighed the public health crisis against economic risks, and the economy came out on the short end. Depending how long the clampdown occurs will affect the revenue projections.

It also means that when the legislature convenes in December, a number of revenue-raising measures will be introduced to try and compensate for the government budget shortfalls.

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