We were in the last two weeks of work on this analysis of the governor’s proposed budget for the fiscal year beginning on July 1, 2020, when the political and economic world in which we’d been living tilted on its axis. The coronavirus that is responsible for the COVID-19 pandemic was creating havoc in China, both to the health of the population and to the economy of the country.
It is now clear that the United States is heading into a recession. We should expect that our economy, and indeed the whole world, will suffer for some time. A recession will have a severe impact on the budget of Pennsylvania with regard to both revenues and expenditure. Revenues will certainly decline. And expenditures for human services—especially for Medical Assistance (Pennsylvania’s Medicaid program), Unemployment Compensation, SNAP (formerly called Food Stamps), Temporary Assistance to Need Families (TANF)—will increase.
Since we do not know how steep the recession will be and how long it will last, it is impossible to give a firm estimate of the impact on state revenues. At this point, our best guess is that the drop in revenues in the 2020-21 budget will be from $2 to $3 billion. We cannot now estimate the impact of the recession on expenditures, but they will certainly be in the hundreds of millions of dollars.
The recession we are entering, then, will wreak havoc on the state budget, and thus the projections of spending contained in the governor’s budget proposal, which we discuss in the rest of this document, are already out of date. Because it is too soon to analyze the impact of the recession on the details of either revenues or expenditures, we have left the text we completed a few weeks ago stand unchanged. Until we have further information, the governor’s proposal, relative to previous year revenues and expenditures, will continue to be the baseline by which revenue and spending changes are projected.
We have made some initial suggestions about public policies to deal with the COVID-19 epidemic in this policy brief: The Moral Equivalent of Wartime Equality: Public Policies in Response to the COVID-19 Pandemic in Pennsylvania.